Capital Gains exclusion on 2nd condo sale

5 Replies

Facts:

1. Condo 1, titled in my name, bought in September 2013. Been living in this condo since (almost 6 years).

2. Condo 2, titled in wife's name, bought in September 2015 and sold in May 2019. Wife lived in the condo from September 2015 through October 2017. Condo was rented out from January 2018 to March 2019.

3. Wife and I got married in October 2017.

When we file our joint tax return (tax year 2019) in Q1 2020, we will not be paying capital gains taxes on the sale of condo 2 due to the 2 out of 5 year rule.

Question:

I am considering selling condo 1. Is there any way I can sell it this year or next without paying capital gain taxes or do I have to wait until at least May 2021?

Any guidance is much appreciated.


Thanks.

On Condo 2, the entire gain will not be eligible for the personal residence exclusion. you will have to allocate between qualified and non qualified use to determine what the exclusion is. The max that will be excluded is $250k because your wife lived in it for 2 years but you did not. For Condo 1, if you want to exclude up to $500k you will have to wait until May 2021 since your wife took the exclusion for 2019. If your gain on the property is less than $250k than you should reach out to your CPA and see if it would be better if you filed as married filing separately for 2019.  

Originally posted by @Dominick Austria :

On Condo 2, the entire gain will not be eligible for the personal residence exclusion. you will have to allocate between qualified and non qualified use to determine what the exclusion is. The max that will be excluded is $250k because your wife lived in it for 2 years but you did not. For Condo 1, if you want to exclude up to $500k you will have to wait until May 2021 since your wife took the exclusion for 2019. If your gain on the property is less than $250k than you should reach out to your CPA and see if it would be better if you filed as married filing separately for 2019.  


Hey Dominick not 100% sure and would love your input but since the "period of nonqualified use" is during the 5 years it is technically an exception correct? Granted the wife did satisfy the requirements to receive section 121. The only thing I think he would need to do is recapture the depreciation. I also agree they only receive $250k exclusion.

Would love to know what you think. Thanks!

@Dominick Austria I have to question your statement about condo 2 having to use the “non qualified use” calculation......she Originally moved into it, occupied for 2 Then rent d and sold within 3 years.  I thought the “non qualified use” was when you occupied it for at least 2 years After it was a rental. ???

Also, can’t they file individual returns and do both 121 exclusions in the same year, since they were both individually owned?  I understand she has to recapture the depreciation while it was a rental.

@Wayne Brooks you are correct. If she didn’t move back into the rental the period after will not be nonqualified use. But I only know the facts that were given and I do not want to give bad information if other facts were omitted. 

Also yes they could file married filing separately. But if they want to exclude more than $250k they will have to wait. Also other factors might play into whether it would be more beneficial to file separately.