Selling your home - publication 523 - worksheet 2, line 5, l. Can you help me find instructions for this line?

[al_davenport]

The line says: "Any gain you postponed from the sale of a previous home sold before May 7, 1997".  Does that mean all previous homes sold before May 7, 1997?

[VolvoGirl]

It could be.  It accumulates.  If you sold a home before May 1997 you could have rolled over the gain to the next house and so on.    That stopped in May.  So you might have some gain left over you haven't reported as taxable.  

[Anonymous_]

Pre May 1997, you used to be able to postpone gain from the sale of your main home provided you bought a new home that cost as much or more than the price you got for your old home.

That law was repealed and replaced by the new one (exemption if you owned and used your home as your principal residence for 2 out of the last 5 years).

If you have postponed gain, you enter it on that line.

[VolvoGirl]

There is a brief explanation in pub 551 page 6 Postponed  gain from sale of home

https://www.irs.gov/pub/irs-pdf/p551.pdf 

[rjs]

On Worksheet 2 line 5l enter the postponed gain from the last Form 2119 that you filed, which would be for the last home that you sold prior to May 7, 1997. That takes into account the gain that was postponed on any earlier home sales, because the gain on the last sale before May 7, 1997 included the postponed gain from the earlier sales. The gain on the last sale was increased by the postponed gain from the earlier sales, because the previously postponed gain reduced the basis of the last home that you sold before May 7, 1997.

[rjs]

If you sold a home after May 7, 1997, and before the current sale that you are working on, do not put anything on Worksheet 2 line 5l. You should have used the postponed gain from before May 7, 1997 as an adjustment to the basis of the first home that you sold after May 7, 1997. After that you have paid the tax on the postponed gain, and you no longer have any postponed gain.

But if the home you are selling now, or have recently sold, is the first home you have sold after May 7, 1997, enter the postponed gain as I stated in my previous reply.

[al_davenport]

Thanks for the help.  I'm left with one last Q: How treat prior rollover gains where joint ownership in the sold homes (and the joint tax returns at the time) were with different spouses than the current sale?  

[rjs]

That's a tough question. I think you are going to have to consult a local tax expert about that. I suspect that there might not be any IRS guidance on how to handle it. It's going to take some research, and might require consulting a tax lawyer. The answer will probably be different depending on whether the marriage that existed at the time that the gain was postponed was ended by divorce or by the death of the spouse.

When you talk to the tax expert, don't call it "rollover gain." That will cause confusion. It's not a rollover. It's postponed gain from the sale of a home before May 7, 1997.

If your current spouse also has postponed gain, you will have to take that into consideration as well.