Section 121 - Sale of separately owned homes

[bleucamaro]

I owned a home while single since 2010.
My (now) wife owned a home while single since 2015 (both meet section 121 ownership and residence requirements).
We married in 2023.
Also in 2023, she sold her home, we field jointly (the gain was less than $250k).
In 2024, I sold my home (gain is also less than $250k).

Are we able to file jointly and use the Section 121 exclusion in 2024 because the properties were separately owned?

[MaryK4]

No, unfortunately, you do not meet the Lookback requirement.  You can only use the exclusion once in a two year period.  Since you filed joint in 2023 and claimed the exclusion, neither can claim the exclusion in 2024 or 2025.  You may be able to see if you can qualify under Does Your Home Qualify for a Partial Exclusion of Gain?

[bleucamaro]

Since posting, I found this thread: Solved: Section 121 and marriage which is similar, and the responses state:

"the legal workaround for the frequency test for married couples is that if each spouse owns a home that meets the ownership and use tests and each meets the frequency test - have not used the HSE in the two years ending on the date of sale of their home, each can exclude up to $250K "

"if the frequency test is not met, the allowable exclusion is limited to the sum of the amounts each spouse would be qualified to exclude if they had not been married. "

Are these statements not true?

[DianeW777]

At least the following list of exceptions do not include what you reference in your follow up questions.

Eligibility Step 5—Exceptions to the Eligibility Test

There are some exceptions to the Eligibility Test. If any of the following situations apply to you, read on to see if they may affect your qualification. If none of these situations apply, skip to Step 6.

• A separation or divorce occurred during the ownership of the home. See Separated or divorced taxpayers.
• The death of a spouse occurred during the ownership of the home. See Surviving spouses.
• The sale involved vacant land. See Vacant land next to home.
• You owned a remainder interest, meaning the right to own a home in the future, and you sold that right. See Remainder interest.
• Your previous home was destroyed or condemned. See Home destroyed or condemned—considerations for benefits.
• You were a service member during the ownership of the home. See Service, Intelligence, and Peace Corps personnel.

If you meet the ownership, residence, and look-back requirements, taking the exceptions into account, then you meet the Eligibility Test. Your home sale qualifies for the maximum exclusion. Skip to Worksheet 1, later.

If you didn’t meet the Eligibility Test, then your home isn’t eligible for the maximum exclusion, but you should continue to Does Your Home Qualify for a Partial Exclusion of Gain. See worksheet 1 to find your exclusion.

@bleucamaro