Which home to exclude taxable gain?

[DebbieRo]

Since 2015 we split our time fairly equally between two homes and spent at least 24 months out of the last five years in both homes. We purchased our retirement (current) home prior to the sale of the other two homes. We sold one of the homes in June 2020 and the other in January 2021. Both gains on the sale are below $500,000. From going through the questionnaire, a tax strategy was suggested to declare the tax exclusion of the home with the higher gain and pay taxes on the other home's gain. I wanted to confirm this is correct as the sales spanned two tax years. Thanks!

[Irene2805]

TurboTax offers the following advice in the article Can We File Two Primary Residences if Filing a Joint Tax Return?

If you cannot easily determine which residence is your main home, there are a number of factors to consider that will help you identify which one it is. Generally, the residence where you receive mail, the address listed on your tax returns and printed on your drivers’ licenses will identify which residence is your main home. In addition, each home’s proximity to your employer and your spouse’s employer, the place where your cars are registered and the place where other family members reside is also indicative of where your main home is.

[Opus 17]

You can’t exclude the gain on both homes since the sales occurred less than two years apart. If both homes meet the definition of being your primary residence for at least 24 months, then it is OK to use the exclusion on the home with the greater gain.

I also believe that each spouse could exclude the gain on one of the homes up to $250,000. In other words, you each use your individual gain limit on the two different homes, rather than combining them on one home. This requires that each spouse meet the ownership and residency rule for the home that they are using to claim the exclusion.  Depending on the amount of the gain, two $250,000 exclusions may save you more in taxes than a single $500,000 exclusion.

[DebbieRo]

I was planning on claiming only one exclusion using the combined exclusion but thanks for the suggestion of using the individual gain limit - very interesting and it may work. Both gains are below the $250K individual limits.

We both owned the two houses during the past five years and split living between the two (MD and DE) over that time so we each would meet the 24 months over the past 5 years rule. I kept my license in MD while my husband switched his license and the car registrations to DE. I'm thinking of using my exclusion in 2020 for the MD home sale and his for the 2021 DE home sale. 👍

Appreciate the guidance!!