Question about the Section 121 Exclusion, the “Capital Gains Exclusion”. $250k limit for single and $500k for married. We are married but can we be treated as single? All our properties qualify for the “two out of five years” primary residence rule.
Below are the detailed description about our case:
House A: under wife's name, was primary residence for 2 years, 2015~2016, sold on year 2017 with capital gain $100,000, claimed exemption already on separate tax return on 2017.
House B: under husband's name, was his primary residence for 2 years, 2014~2015 (married year 2015), sold on year 2018, capital gain $110,000.
House C: under wife's name, was primary residence for 2 years, 2017~2018, capital gain probably $80,000 if sell.
Question 1: Can we claim the exemption of 110,000 on House B this year? Do we need to file separate tax returns or jointly?
Question 2: Can we sell house C on year 2019 and claim the capital gain again?
The danger in answering this question is that there's enough small print in these rules to swing the answer either way. The only way to have a definitive answer is to have a detailed one-on-one discussion.
That said, a tentative generic answer to both questions is yes. You do need to file separate returns for this to work, and the gap between A and C must be 24 months.
Keep in mind that filing separate returns usually increases your combined tax, so while you win in one area, you lose in another. Can you do it while filing joint returns? Possibly, but we would need to discuss the details.
To avoid confusion: I refer to "married filing separately" filing status, not "single" status. You cannot file as single while being married.