Primary home: Partial Exclusion of Gain

[phuoc90duy]

Hi everyone, 

We're selling our home which we own for less than 2 years & we claim it as 'primary home' during pandemic:

- I work from this home for the past 1.5 years, and my spouse stays here on and off

- We're now selling this home, and buying another one in different location

Based on the IRS publication, page 6 https://www.irs.gov/pub/irs-pdf/p523.pdf, I should meet the requirement under Partial Exclusion of Gain, by claiming the following:

- My spouse buys the new place as 'primary home'

- And i sell this house with the reason of my job requires me to return to the office (my office is not in the same location of new primary home)

Am I right in my understanding?

Thank you in advance,

[Opus 17]

Your question is confusing.

It doesn't matter who buys a new house or when, that has nothing to do with the taxes on the current house you want to sell.  

To qualify for the partial exclusion, the move has to be unforeseen and unpredictable.  You have lived in the home since March 2020, more or less.  That's already in the pandemic, why did you move then?  If you moved because your job went to remote work, it is not unpredictable that remote work would end someday.  And the job change rule for partial exclusion requires a job change, which is not happening here.  If you don't meet the job change "safe harbor" rule, then you have to use the "facts and circumstances" rules, and you have to show a significant financial hardship in staying where you are, due to unforeseen circumstances.  My thinking is that you might not be able to satisfy an auditor that your move was due to an unforeseen hardship.  In the end, this is not for me to say, but for you to prove to an auditor, if you get audited.  Save copies of documents, emails, etc. that relate to your move for 6 years just in case.  You will claim the exclusion on your tax return but you don't send proof when you file.  If the IRS wants to see proof they will send a letter asking for it later. 

If your spouse stays there "on and off" is it really her main home?

If you believe you qualify and claim the partial exclusion, it will be based on the shortest of 3 time periods:

• the number of days you owned the home
• the number of days you lived in the home as your main residence
• the number of days since the last time you used the exclusion to sell a main home

Note that you and your spouse must both meet the residency rules separately, to each use your exclusion.  If you have lived in the home for 500 days, your partial exclusion would be 500/730=68% of $250,000, or $171,000.  But if your wife only lived in the home 300 days, her exclusion would be $102,000.  You can't base the calculation on the joint exclusion of $500,000 unless you both lived in the home as your main home for the same length of time. 

[phuoc90duy]

Thank you for the response and advice. Sorry my question wasn't very clear, but you covered all the aspects that I wasn't sure actually.

We're only thinking about buying a new primary home, but I wanted to make sure that we knew what we got into, before making the purchase. It's clear that I need to talk a tax planner this time if we go ahead with the purchase.

Thanks again!