If I sold a home early in the year and then got married late in the same year does the 500k credit apply or just the 250k?

[DoninGA]

Just the 250K exclusion if you both did not live in the home for at least two years in the 5 years before the date of sale.

[dozierrrr]

We both lived in the home for 7 years, just not married. 

[Opus 17]

@dozierrrr 

The question is going to be, at the time of the sale, did your partner qualify for the exclusion? Would your partner qualify for the exclusion if she filed as a single person this year, or if she filed as married filing separately?

If at the time of the sale, your partner met the residency requirement but was not an owner, then your partner is not entitled to the exclusion, and even though you may be filing jointly this year, your maximum exclusion is $250,000.  The fact that you later got married does not retroactively make your partner an owner before the sale.   If you co-owned the property and your partner met both the residency requirement and the ownership requirement, then your partner is entitled to a $250,000 exclusion, whether she files separately or jointly with you.

[Updated]

An Intuit employee here says you qualify for the full credit even if you got married after the sale, as long as your spouse met the residency rule (had lived in the home >2 years before the sale).

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/capital-gains-on-home-sale-marri...

[dozierrrr]

You made that crystal clear, thank you so much!

[Anonymous_]

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@dozierrrr wrote:

We both lived in the home for 7 years, just not married. 

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Only one spouse has to meet the ownership test.

See https://www.irs.gov/publications/p523#en_US_2022_publink10008952

Determine whether you meet the ownership requirement.

If you owned the home for at least 24 months (2 years) out of the last 5 years leading up to the date of sale (date of the closing), you meet the ownership requirement. For a married couple filing jointly, only one spouse has to meet the ownership requirement.

[Opus 17]

[removed]

[Opus 17]

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@Anonymous_ wrote:

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@dozierrrr wrote:

We both lived in the home for 7 years, just not married. 

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Only one spouse has to meet the ownership test.

See https://www.irs.gov/publications/p523#en_US_2022_publink10008952

Determine whether you meet the ownership requirement.

If you owned the home for at least 24 months (2 years) out of the last 5 years leading up to the date of sale (date of the closing), you meet the ownership requirement. For a married couple filing jointly, only one spouse has to meet the ownership requirement.

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An Intuit employee says here that you qualify for the full $500,000 even if you got married after the sale.

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/capital-gains-on-home-sale-marri...

I am not entirely convinced, and if I was in this situation, I would pay for an opinion from a local expert who would support me in case the IRS asked questions. 

[Anonymous_]

Per Section 1.121-1(a) it appears to be fairly unambiguous.

(3) Special rules for joint returns—(i) In general. A husband and wife who make a joint return for the year of the sale or exchange of a principal residence may exclude up to $500,000 of gain if—

(A) Either spouse meets the 2-year ownership requirements of §1.121–1(a) and (c);

(B) Both spouses meet the 2-year use requirements of §1.121–1(a) and (c); and

(C) Neither spouse excluded gain from a prior sale or exchange of property under section 121 within the last 2 years (as determined under paragraph (b) of this section).

The deduction here hinges upon the filing status rather than the status of the parties at the time of the sale.

[dozierrrr]

Yeah, it’s tough to say. No local CPA’s will return my calls. That’s why I’m relying on the internet right now.

We bought the home late 2016, only in my name. We’ve been together for nearly 20 years. Just never married. (I know bad on me)

Had roughly 200k in the home and we sold it for 500k earlier this year. So we have roughly 300k in gains

Trying to save as much of it as we can so hopefully if this market ever softens we can buy something outright. 

Currently we are living in an RV on a friend’s property. 

[Opus 17]

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@dozierrrr wrote:

Yeah, it’s tough to say. No local CPA’s will return my calls. That’s why I’m relying on the internet right now.

I've changed my mind on this.  When I read publication 523 I wasn't sure, but I agree the actual tax law is unambiguous that you qualify for the full exclusion as long as your now-spouse lived in the home with you.

The thing about taxes is they don't have to make sense, they just have to follow the law, and sometimes the people who write the laws don't make sense, or at least, they don't always consider uncommon fact situations.    It might seem sensible that you have to be married when you sell the house, but that's not what the law says.  There are several places in the tax law where being married on 12/31 of the year and filing jointly, affects everything that came before, and this looks like one of those times.  (For most tax provisions, if you file as married, you are treated as being married for the whole year.)