Section 121 Exclusion When Owning 2 Homes

[DEC100]

My wife and I purchased a house in Florida and closed on January 27th, 2021. We've been established residents in Florida for 10 years (drivers license, registered vehicles, homestead exemptions, voter registration, full-time address, etc).  We spend 4 months a year in a summer house in New England.  We plan to sell the Florida house as soon as possible after January 27th, 2023 (24 months from the date of purchase) and would appreciate any feedback  on whether the 4 months a year we spend in New England counts toward the 24 months of required residency to qualify for the Section 121 exclusion from capital gains on the sale of the Florida house.  Many thanks.  DEC100

[tagteam · Accepted solution]

The Florida house must be your principal residence as set forth in the Treasury Regulations - Section 1.121-1(b)(2) - and that depends upon all of the facts and circumstances.

See https://www.law.cornell.edu/cfr/text/26/1.121-1

[DEC100]

Thank you for the prompt response.  In all examples provided by Cornell.edu and others, reference is made to 2 months as being short term, but not the 4 months plus in our case.  Perhaps there is no specific time period defining the short absence except that less time must be spent in the vacation home than in the permanent residence.  

[tagteam · Accepted solution]

Examples were not written by Cornell; they are reprints of actual (IRS) Treasury Regulations.

Regardless, you are clearly spending a majority of the time during the year at your house in Florida so that should not be the concern. More likely it would revolve around the other factors listed, such as place of employment, where you bank and vote, address shown on your federal income tax return, et al.

[DEC100]

Many thanks for the clarification.

[Mike9241]

from the regs

(i) In establishing whether a taxpayer has satisfied the 2-year use requirement, occupancy of the residence is required. However, short temporary absences, such as for vacation or other seasonal absence (although accompanied with rental of the residence), are counted as periods of use.

and

Release No: IR-2002-142

To exclude gain, a taxpayer must both own and use the home as a principal
residence for two of the five years before the sale. The ownership and use periods
need not be concurrent. The two years may consist of 24 full months or 730 days.
Short absences, such as for a summer vacation, count as periods of use, but longer
breaks, such as a one-year sabbatical, do not. The taxpayer also must not have
excluded gain on another home sold during the two years before the current sale.

*

so in effect, "short absences" is not specifically defined. some taxpayers spend every weekend at their vacation home. that would be about 104 days a year or 3.5 months.  i would regard this as a temporary absence. so should there be a difference in "short absences" because some taxpayers spend only weekends away while others may spend the same 3.5 months away at one time?  to me, the answer would be no.  especially since other factors would indicate that Florida is where your primary residence is.  

[DEC100]

Excellent analogy.  Thank you.

[AmeliesUncle]

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@Mike9241 wrote:

some taxpayers spend every weekend at their vacation home. that would be about 104 days a year or 3.5 months.  i would regard this as a temporary absence. so should there be a difference in "short absences" because some taxpayers spend only weekends away while others may spend the same 3.5 months away at one time?  to me, the answer would be no.  

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I don't agree with that reasoning.  For example, if somebody were to ask "where to you live"?, I think the first scenario would always say the home that they reside in for 5 days a week.  In the second scenario, that seems questionable.

Although things depend on the specific facts-and-circumstances, the phrases "summer home" that they spend "4 month a year" would make me think that is their Principal Residence for that portion of the year (although as you stated, the other facts such as driver's license, etc. could turn that around).

[DEC100]

Thank you for the response.