Real estate cap gains Exemption question

[Trustthebeard]

So, I have an interesting situation. I sold my old home on 3-7-2020 and realized  a gain, so I used the exemption on this year’s return. I have currently lived in my new home for more than two years, but I should not be able to claim the exemption again if I sell my new home now (3-2021). However, I am planning to move out of state and change jobs, so my question is, since I will realize yet another gain on this new house, can I avoid capitol gains taxes by using the exemption of “moving jobs”, or is that considered the same as the first exemption? From what I have read you may exempt under those “moving” circumstances even if you have not lived there for two years (which I have anyway) but it is not clear on whether you have taken the other exemption within the 2 years of the previous sale date from the regular exemption... Thank you for any help. (Hopefully I was clear on all that. Also, both gains will still mot exceed the 250k exemption for filing joint)

[TomD8 · Accepted solution]

"You meet the requirements for a partial exclusion if any of the following events occurred during your time of ownership and residence in the home.

• You took or were transferred to a new job in a work location at least 50 miles farther from the home than your old work location. For example, your old work location was 15 miles from the home and your new work location is 65 miles from the home.

• You had no previous work location and you began a new job at least 50 miles from the home.

• Either of the above is true of your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence."

https://www.irs.gov/publications/p523#en_US_2020_publink100073097

The partial exclusion is ordinarily limited to the percentage of the two years up to the date of the sale that you owned and occupied the home as your principal residence.

Note that the full exclusion if filing a joint return is $500K.

[Carl]

I sold my old home on 3-7-2020 and realized a gain, so I used the exemption on this year’s return. I have currently lived in my new home for more than two years, but I should not be able to claim the exemption

No, you will not qualify for any exemption if you sell your current home "BEFORE" 3/7/2022.

Per Eligibility Step 4 - Look Back in IRS Publication 523, page 4, you do not qualify.

However, it's perfectly possible you may qualify for a partial exclusion if you meet the partial exclusion requirements also detailed in IRS Pub 527.

[Trustthebeard]

Thank you. That was my question was if I could take the partial since I’ll be moving and changing jobs. My question was does the previous full exemption disqualify me from the partial this time, or is it two separate things?

[Carl]

does the previous full exemption disqualify me from the partial this time, or is it two separate things?

From my perspective, that's a "grey area" that could probably be interpreted both ways. My own interpretation is that since the word "or" is insinuated between the full exemption rules and the partial exemption rules, if you are not moving by choice, then you would qualify for a partial exemption. But that doesn't mean the IRS interprets the rules the same as I do.

Personally, I wouldn't attempt the partial exemption unless the tax savings would be substantial. But even then, I would make sure I had the cash on hand to pay the taxes with, if the IRS sends me a nasty gram with a bill.

[TomD8]

IRS Publication 523 says:

"If you didn’t meet the Eligibility Test, then your home isn’t eligible for the maximum exclusion, but you should continue to Does Your Home Qualify for a Partial Exclusion of Gain ."

Since the two-year look-back is part of the Eligibility Test, I believe that failing it would not disqualify the taxpayer from taking a partial exclusion.

I also believe that the qualifying job transfer does not have to be involuntary.  The IRS language is "You took or were transferred to a new job..."

[Carl]

Since the two-year look-back is part of the Eligibility Test, I believe that failing it would not disqualify the taxpayer from a partial exclusion.

That's what I say. I would think it would depend on just precisely what it is that qualifies one for the partial exclusion, such as having to move by no choice of their own.

[Anonymous_]

With respect to a change in the place of employment, pursuant to Treas. Reg, §1.121-3(c), whether or not the taxpayer has a choice is irrelevant; the partial exclusion would still apply assuming the other requirements are met.

[Trustthebeard]

Thanks. I am thinking the same thing.