Capital Gains Tax Exemption on 2 Homes?

[Matt Jamieson]

Hi All!

Google Search came back with, "When does capital gains tax not apply? If you have lived in a home as your primary residence for two out of the five years preceding the home's sale, the IRS lets you exempt $250,000 in profit, or $500,000 if married and filing jointly, from capital gains taxes. The two years do not necessarily need to be consecutive."

Question: If we purchase a new primary residence and convert current primary into rental, then would we (married couple filing jointly), be able to sell BOTH homes capital gains tax free on up to $500,000 profit each?  After the 2+ years in the 2nd home in this example.  

Example Summary...

Property A: Primary Residence from July 2020 - April 2024.  (Bought for just over $400k now worth around $600,000 )  Converted into Rental in April 2024. 

Property B: Primary Residence from May 2024 - June 2026.  Cosmetic fixer upper, potential to build $100K-$150K equity between 2024 and 2026 (assuming market stays exactly the same with no increase or decrease in market pricing).

June 2026: Listing both properties for sale and (if they sell at desired price points) seeing potentially 300K-400K profit (Between both locations) that we would not need to pay capital gains tax on.

In any case, my wife and I are looking into this as next investment, but wanted to put on this forum to see what you all think? 

All feedback welcome, we are hungry to learn and to hear what has worked for others in this current market.

Thank you in advance!