Can I sell 2 main homes in two consecutive years and exclude capital gain for both?

[radiostar5431]

First main home sold was only inhabited for a year and did not make the 2 year rule due to unforeseen event (divorce) then the following year you sell your second main home (original main home before unforeseen event lived in 3 out of 5 year prior to sale). Can you do a partial exclusion for year "x" and do a full exclusion for year "y"?

[rjs]

No, you cannot do that. You can only take an exclusion, partial or full, once in a 2-year period. There must be a full 2 years between the closing dates of the two sales. It's determined by the length of time, not calendar years.

If you already took a partial exclusion on the first sale, you could file an amended return for that year to remove the exclusion. That would mean, of course, that you would have to pay additional tax for that year. Then you could take the exclusion on the second sale.

It's not clear what you sold when, and how long you lived in each home. You wrote "First main home sold was only inhabited for a year," and also "original main home before unforeseen event lived in 3 out of 5 year prior to sale." Are "first main home" and "original main home" the same home or two different homes? If you have more questions, please clarify the details of the two sales. But in any case you cannot take an exclusion more than once in any 2-year period.

[radiostar5431]

To Clarify:

House A sold 2022 due to divorce (unforeseen event), was only lived in for 14 months total.

House B was sold 2023 and only one spouse lived in it as a primary for 3 years 2017-2020. 

I saw another post where it was mentioned someone could due to the unforeseen event cut the time short, but I'm not sure if that may situation would qualify.

Can I sell both during the same year and file one lump capital gains exclusion?

[Opus 17]

The previous answer is not quite correct. You can use the exclusion twice in less than two years, but the second sale must meet the special rules for unforeseen circumstances, regardless of the circumstances of the first sale. Even so, and noting that you are still missing some facts, I suspect you do not qualify to use the exclusion twice under your circumstances.

For example, suppose you sold home A in 2022 after owning it less than two years, because of a divorce, and then you sold home B in 2023 due to a different unforeseen circumstance, such as loss of a job. You can potentially qualify to use a partial exclusion in 2022 for home A and another partial exclusion in 2023 for home B.

In your case, we are still missing facts about the sale of home B. You mentioned that it was occupied from 2017 to 2020 and then sold in 2023.  First, you need to clarify if you really mean 2023, because that hasn’t happened yet. Are you talking about a plan to sell a home, or did you get your dates confused?

In the case of a divorce, both ex-spouses are entitled to use their individual $250,000 exclusion even if one spouse moved out, as long as the other spouse meets the two-year and the five-year tests.  If your dates are correct, you said that only one spouse lived in home B from 2017 through 2020 and the sale will occur in 2023.  Depending on exactly when in 2023 the home was sold and when in 2020 the second spouse moved out, the second spouse may be allowed to use their full exclusion in which case both ex-spouses can use their full exclusion.  But this does not count as an unforeseen circumstance that would allow you to use the exclusion less than two years after using the exclusion on home A.   If the sale of home B qualifies you to use the exclusion under the regular rules, you can’t use any exclusion if you claimed the exclusion on home a less than two years previously. You would have to not claim the exclusion on the sale of home A in order to claim the exclusion on home B.

But you may still need to clarify for us the circumstances and the dates.

[radiostar5431]

Thank you.

I plan to sell the home B in the future. It was my main home before I married, but I'm purchasing a new home that fits my current needs.

Based on what you mentioned, I can only take one exclusion and it would behoove me to take the one that offers the better break which would be the future sale. Is there a loophole or some ideas where I can lessen the tax burden on the sale of home A?  

[Mike9241]

I agree with the others  - only one exclusion every two years measured by the dates between the two sales. the sale of A is what it is. so you will owe taxes as if you never took the exclusion + plus interest and possibly penalties for late payment.  be careful, the gain will increase your income which besides directly increasing your taxes can have an effect on other items in your return.  the only real way to save taxes in your situation would be to wait the full two years after the sale of A to sell B. 

[radiostar5431]

Thanks everyone.

Unfortunately waiting 2 years is not an option.

[Opus 17]

It is very clear that a person can sometimes use the exclusion twice in less than two years. That should not be up for debate.

@radiostar5431  You need to consider the circumstances of the sale of the second home. You have not described any conditions under which it would meet the conditions for a partial exclusion.  It sounds like a voluntary downsizing. The partial exclusion only applies if you have some kind of financial emergency, either one of the safe harbors described in the regulations, or another set of facts and circumstances that makes it impossible for you to continue owning the home.  

If you qualify to use the partial exclusion due to the emergency financial hardship rule on the sale of the first home and the sale of the second home, then you can use the partial exclusion rule twice in less than 2 years.   However, if you don’t qualify under the hardship rule for the second home, then you can either use the partial exclusion on the first sale and no exclusion on the second sale, or you can use the full exclusion on the second sale (which you might qualify for) and use no exclusion on the first sale.

There are no particular tricks to reduce your taxable capital gains on the sale of either home.  Your gain is the difference between your adjusted cost basis and the selling price.  The only way to reduce your gain is to document as many adjustments as possible. Allowable adjustments to the cost basis are listed in IRS publication 523 starting on page 8.