Capital Gains on Home Sale- Marriage Requirements

[coastal]

If I am married after I sale my house, but both events occur in the same tax year, do we still get the $500k exclusion?  It appears we do (just confirming).
Additionally, we will meet all of the rules for the tax year of the home sale and marriage: 

I owned the home for over 2 years.

We will be Married Filing Jointly (MFJ).

Both of us have resided in the home for at least two years prior to the sale.

Neither of us previously claimed a home sale exclusion within the last two years.

[SusanY1 · Accepted solution]

Yes, you do get to take advantage of the full $500,000 exclusion when both the sale and the marriage occur in the same year, even if the wedding took place on the last day of the year. 

It sounds like you had quite a year! 

Congratulations on the move and the marriage, and best wishes for a wonderful 2020!

[Opus 17]

Note for other readers: After the marriage, only 1 spouse has to qualify for the 2 year/5 year ownership rule, but both spouses must qualify for the "must have lived in the home as your main home for at least 2 years" rule.  The taxpayer in this case qualifies for the full exclusion because they lived in the home with the (new) spouse for at least two years (when they were not married).  If you marry and your spouse moves in with you at that time, the spouse can't use their portion of the exclusion ($250,000 per spouse) until the spouse has lived there 2 years.

[aesherrell]

What proof is required to show two years residency? My boyfriend moved in with me 2 years ago. We do plan to get married as well. We plan to sell in the next six months. That said, he’s not on the title or any of the utilities. What is required for proof of residency?  

[Mike9241]

his residency is only going to matter if you sell after marriage. then the exclusion could be as much as $500,000

sell before and only you get it and its a max of $250,000

as for proving he occupied it for two years if sold after marriage and you need more than the $250,000 exclusion ask then because the laws change and it's really a question of what will satisfy an IRS auditor if they even ask and that's if you get audited. no proof needs to be submitted with the return.

[aesherrell]

Out of curiosity, your response is different from the expert. The expert said, “you do get to take advantage of the full $500,000 exclusion when both the sale and the marriage occur in the same year, even if the wedding took place on the last day of the year.” 

[Mike9241]

i was thinking of the situation where the house was sold in a year when you weren't yet married by year-end.

[Opus 17]

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@aesherrell wrote:

Out of curiosity, your response is different from the expert. The expert said, “you do get to take advantage of the full $500,000 exclusion when both the sale and the marriage occur in the same year, even if the wedding took place on the last day of the year.” 

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It's a bit of a weird situation.  Conventionally, you file a return based on your status as of December 31; if married on that date you file as if you were married all year.  For the home sale, IRS publication 523 says that only one spouse must meet the ownership requirement but both spouses must meet the residency requirement.  But it's not clear if that means "at the time of the sale" or "at the time of filing the return."

If your gain is less than $250,000 it won't matter.  If your gain will be more than $250,000 and you think you might want to close on the sale before the wedding date, you may want to get an opinion from a professional tax accountant in your area. 

[aesherrell]

Thank you so much for the additional details! Here’s the unique part of the situation, I actually signed the paperwork early last year and sold my house to a developer although the sale doesn’t go through until this summer. Do you think any of that makes a difference? I’m assuming it doesn’t. Also I’m trying to figure out how much tax is put on earnest money. 

[Opus 17]

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@aesherrell wrote:

Thank you so much for the additional details! Here’s the unique part of the situation, I actually signed the paperwork early last year and sold my house to a developer although the sale doesn’t go through until this summer. Do you think any of that makes a difference? I’m assuming it doesn’t. Also I’m trying to figure out how much tax is put on earnest money. 

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If you are under contract but the home hasn't closed, then it hasn't been sold yet.  The home is sold at the "closing" when you sign over the title, and the new owner can record the title and deed at the county records office.

What do you mean, taxation of earnest money. 

[aesherrell]

I’m trying to figure out how much of the earnest money I get to keep. Do you know the percentage of tax i’ll have to pay on the earnest money?