Selling a home in 2021 - got home exemption but not sure if that was right...

[yesterlife]

Hey everyone, I need some help here figuring out if I made a mistake in 2021 when filing...

I sold two homes recently. One in 2021 and one in 2022. When I was filing taxes for 2021, I used TurboTax and followed the wizard and somehow qualified for an exemption on the capital gains I made on the home sale in 2021. I filed as married filing jointly, and the capital gains amount was roughly $25k. 

I didn't live the house for a full year, and I can't recall what would have qualified me for the exemption other than maybe it asked if I was using the funds to buy another home? which is technically what we did... we moved from one state to another. I took the proceeds from the home sale in 2021 and applied it to the new home we bought after the 6-month time span had elapsed (Chase rule doing a mortgage payment/reallocating etc.) - should this have been allowed? 

I am confused because now when I am filing taxes for 2022, I know I have to showcase the sale of the 2022 home, and the small profit margin we made, but I am also having second guesses about what we did in 2021. 

Any help would be greatly appreciated.

Thank you!

[leeloo]

The provision to postpone the gain by buying a more expensive house in the mid 1990s. You may have taken advantage of a partial exclusion based on the number of days you actually did own and live in the home.

The list of possible reasons is found here: 

https://www.irs.gov/pub/irs-pdf/p523.pdf

[DMarkM1]

As @leeloo mentions you would only have qualified for a partial exclusion due to selling the home for some unforeseen reason.  Perhaps there was a job change or health change for example.  The link provided is awesome in showing the possible reasons and the calculations for a partial exclusion.  You may also find a reason for a partial exclusion on the 2022 sale as well.  Here is the link again for you.

[yesterlife]

Thanks for the reply - so even if I took advantage of something in this category: 

Other Facts and Circumstances

Even if your situation doesn’t match any of the standard requirements described above, you still may qualify for an exception. You may qualify if you can demonstrate the primary reason for sale, based on facts and circumstances, is work related, health related, or unforeseeable. Important factors are:

• The situation causing the sale arose during the time you owned and used your property as your residence.

• You sold your home not long after the situation arose.

• You couldn’t have reasonably anticipated the situation when you bought the home.

• You began to experience significant financial difficulty maintaining the home.

• The home became significantly less suitable as a main home for you and your family for a specific reason.

That means that for the home sale in 2022, I will definitely have to may short-term cap gain taxes, because I already used an exclusion, from the 2021 home sale, within a 5 year period - is that correct? 

[ShirlynW]

Yes, that is correct.  As @leeloo mentioned, you may only qualify for a partial exclusion due to selling the home for some unforeseen reason.

You’re only allowed to exclude gain on the sale of a home once every two years. This is true unless the reduced gain exclusion rules apply. You usually can’t exclude the gain on the sale of a home if both of these apply:

• You sold another home at a gain within the past two years.
• You excluded all or part of that gain during the two-year period ending on the date of the sale.

If you can’t exclude the gain, include the entire amount in your taxable income.

For more information