Sale of primary home - Married filing separately vs Married file Jointly

[dimitrim]

My wife and I typically file Married filing separately. In 2021 we sold our primary home and made more than $250K. To take advantage of the $500K tax-free profit do I have to change and file Married file Jointly? Is it possible to continue to file MFS and somehow split the proceeds and expenses of the home sale equally between the two us? 

[Cynthiad66 · Accepted solution]

Yes.  You can everything evenly including the exclusion.  Total exclusion for each of you will be $250,000.00.

The gain from the sale of your home is tax-free if all of these apply: You (or your spouse, if married filing jointly) meet the ownership test. You and your spouse (if married) file married filing jointly or married filing separately.

For example, if you and your spouse own a property jointly and you both live there, you can potentially exclude up to $250,000 of your share of the gain on your separate return if the property is sold. Your spouse can do the same.

The tax code recognizes the importance of home ownership by allowing you to exclude gain when you sell your main home. To qualify for the maximum exclusion of gain ($250,000 or $500,000 if married filing jointly), you must meet the Eligibility Test

@dimitrim

[dimitrim]

@Cynthiad66 Thank you. 

Can you please clarify. 

For example 5 years ago my wife and I bought a house for $200K and lived in it, primary home and meet ownership test. In 2021 we sold the house for $600K. How do I handle the $400K gain. 

1. If we file as Married filing separately, do I claim $600K/2=$300K - expenses  as selling price in each file or 

2. I must switch from MFS to Married filing Jointly to account for the total $400K gain in a single file

Is #1 a viable option ? 

[dimitrim]

@Cynthiad66 

Hi, were you able to see my follow up clarification question? 

Thanks