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jll6
Level 1

Overpaying taxes and doing an extension

My husband and I sold our FL home last year in Feb '21. We moved to MD and bought a home in 10/21. He has since started a new job in NC and we will be moving again and selling our MD home in a month. From what I understand, if we do the capital gains exemption on our FL home, we would not be able to do even a partial exemption on our MD home. However, since we haven't sold our MD home yet, we don't know which will cause the higher tax -- the long term capital gains on our FL home or the short term capital gains on our MD home. My thought process is to NOT take the exemption on our FL home, pay our taxes on it BUT file for an extension on our taxes. Then, if we realize it makes more tax sense to exempt our FL home, get a refund when we officially file our taxes. I've tried calling the IRS to discuss but everytime I've called, the automated answer tells me they don't have people who answer those questions anymore and to look online. Does this sound like the best way to approach this situation? Thanks in advance!

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2 Replies

Overpaying taxes and doing an extension

I am not an expert on this. 

It seems to me that you have another options - to file and claim the exclusion now, and then after you sell your MD home to evaluate the best solution.  After that, if you want to change, you can file an amended return, changing your choice.  Changing you mind could cost you late payment penalties and interest.

I'm unsure how this could affect your state returns.

Note:  You may not qualify for an exclusion for your MD house because of the 2 year use requirement.

Refer to https://www.irs.gov/taxtopics/tc701 and related links for more info.

 

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DianeW777
Expert Alumni

Overpaying taxes and doing an extension

You should consider taking the exclusion on the first home, then you will likely qualify for a partial exclusion on the second home for the following reason:

 

Work-Related Move 

You meet the requirements for a partial exclusion if any of the following events occurred during your time of ownership and residence in the home. 

  • • You took or were transferred to a new job in a work location at least 50 miles farther from the home than your old work location. For example, your old work location was 15 miles from the home and your new work location is 65 miles from the home. 
  • • You had no previous work location and you began a new job at least 50 miles from the home. 
  • • Either of the above is true of your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence.

See the worksheet and other details in IRS Publication 523.

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