Two Primary Residences

[kcnodak]

My wife and I have two residences in two different states due to our employment situation.   My wife lives in one and I live in the other, nearly full time.  We purchased the second home 4 years ago and I have lived in it full time except for work travel and weekend trips to visit my wife.  For the past year, during the pandemic, I have been working remotely from my wife's home.  I have a car licensed in the state of the 2nd home and it is listed as my residence with my employer.  I will be retiring this year and we plan to sell the 2nd home, likely at a gain.  Everything I have read indicates that I am not able to take the capital gain exclusion.  Is there any exclusion at all when the second home was for work and not a vacation or income property?  Thanks.

[Cynthiad66]

The IRS is very clear that taxpayers, including married couples, have only one primary residence—which the agency refers to as the “main home.” Your main home is always the residence where you ordinarily live most of the time. ... There are, however, tax deductions the IRS offers that cover the expenses on up to two homes.

It's perfectly legal to be married filing jointly with separate residences, as long as your marital status conforms to the IRS definition of “married.” Many married couples live in separate homes because of life's circumstances or their personal choices.

The key phrase in that last paragraph is primary residence. Second homes typically do not qualify for this exclusion. However, it's worth mentioning that the IRS defines the term primary residence as somewhere that you lived full-time for at least two of the five years preceding the sale.

Please check out this IRS Publication on the sale of your residence.

Sale of Residence

[Mike9241]

married couples 

filing a joint return can exclude up to $500K of gain under the following circumstances

ownership; either or both must have owned it for 2 out of 5 years before sale

use: both spouses must have used it as their principal residence for 2 out of 5 years before sale

frequency: during the two year period ending on the dte of sale, neither spouse excluded gain from the sale of another home

use and frequency tests nit met by both spouses. for a married couple to qualify for the full $500K either spouse may meet the ownership test but both must meet the use and frequency test. if both spouses don't meet the use (you don't) and frequency  test, the allowable exclusion is limited to the sum of the amounts that each spouse would be qualified to exclude if they had not   been married

since you meet the ownership and use test for your home, you can exclude $250,000.  there is nothing in the law that says it must be your principal residence when sold.  as a matter of fact some taxpayers convert their home to rental and then within the 5 year period sell it. they are entitled to the exclusion but must recapture depreciation.

IRS article to this 

https://www.irs.gov/faqs/capital-gains-losses-and-sale-of-home/property-basis-sale-of-home-etc/prope...