Section 121 exclusion Look back requirement

[any_mouse]

I sold a home in October of 2021 and claimed a Section 121 exclusion on it. I am now selling a home in June 2023 which I have lived in for over 2 years. Can I claim the exclusion on it when I file taxes?

Publication 523 states:

Eligibility Step 4—Look-Back 

If you didn't sell another home during the 2-year period before the date of sale (or, if you did sell another home during this period, but didn't take an exclusion of the gain earned from it), you meet the look-back requirement. You may take the exclusion only once during a 2-year period.

By the time I file for the exclusion it will have been the full 2 years. If I don't qualify can I still file for a partial exclusion?

[tagteam · Accepted solution]

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@any_mouse wrote:

By the time I file for the exclusion it will have been the full 2 years. 

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The requisite (2-year) time period is from the the date of the sale (the closing date), not the date you file your return claiming the exclusion. 

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@any_mouse wrote:

If I don't qualify can I still file for a partial exclusion?

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You can claim a partial exclusion only if you qualify (link below).

See https://www.irs.gov/publications/p523#en_US_2022_publink100073096

[any_mouse]

Thanks for the response. I moved out of the house around a year ago hoping to rent it. But my mother in law remained there so I never really made a profit on it. A number of factors led to the decision to sell which may qualify. My wife was very sick last year making it difficult to maintain the property. I did qualify for unemployment twice while living in the home, and once since moving out. It has become a financial burden to keep it so I was hoping to get it off my hands.

Edit:

These factors seem to qualify as health related and unforeseeable events, but not all of them occurred while living at the house.

Also, the house I sold in 2021 my wife did not own. But we did file jointly for that year of taxes. Could she now claim the exclusion for the house we co-own this year since she didn't own the house sold in 2021?

[tagteam]

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@any_mouse wrote:

These factors seem to qualify as health related and unforeseeable events, but not all of them occurred while living at the house.

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I understand but, regardless, you will have to make a judgment call on those matters (generally, whatever appears to be reasonable).

[Mike9241]

@any_mouse the general rules for the exclusion is that either spouse can own it, but both must occupy it as their principal residence for 2 years of the 5 years before sale.  Then they qualify for the maximum exclusion provided the other rules are complied with.  They don't even need to occupy it as their principal residence at the same time. So, if they meet the ownership and occupancy test for the 2021 house they are entitled to the full $500,000 exclusion and would have to wait two years from the 2021 sale to sell another principal residence to qualify again for the full exclusion.