Taxes: Selling 2 Properties Claiming Exclusion of Gain + Partial

Member since 2017 · 2 posts · 0 votes

I sold two properties last year, one of which was a rental, but both pass the look back test. Would I be able to claim the exclusion of gain for my primary residence and claim a partial exclusion for my renal or vise versa?

If so, how would I apply the exclusion(s)?

I am married filing jointly and my wife isn't on the rental house. Could I claim the exclusion on the rental and partial on the primary, at which point my wife has never claimed an exclusion or is there more reasonable guidance.

My claim is that due the theft of my car and the burden placed on me financially and mentally qualifies as an unforeseeable event that caused me to move to a cheaper safer house.

My tax preparer disagreed and has asked that I pick up my paper work.

0 Reply

28 views

Most Popular Reply

Basit SiddiqiBusiness Member

Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes

@David Gates

You should see if you can do section 121 exclusion on one home and maybe QOF on another home.

[email protected]917-280-8544

Basit Siddiqi CPA4.880 Reviews

View Page

2 Reply

See this reply in the discussion

5 Replies

Jump to latestLatest

Sort by

Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
6y
@David Gates, sorry to be the bearer of bad news. But your accountant was probably right.
1. The rental in no way qualifies for any exclusion. First is is not. your primary residence. Second, you can only take one primary residence sale in any two year period. Third the only tax deferral for the rental is a 1031 exchange. And to qualify for that you must have a qualified intermediary in place prior to the sale and. you cannot touch the money. So the 1031 on the rental is out.
2. If you lived in the primary for two out of the previous 5 year period then you and your wife would qualify for the sec 121 exclusion and get the first $500K in profit tax free. But you can only do this once ever two years. And if you haven't lived there for two years yet then you would have to qualify for one of the exclusions (job related transfer or medical situation, or unforeseen event). But I don't know if a car theft would qualify. The IRS is pretty picky about what they allow as "unforeseen".
At least on the rental side there is nothing you can do. You will pay the tax unless you do something like an opportunity zone investment.
The 1031 Investor5140 Reviews
Website View Page
1 Reply
David Gates
OP
Member since 2017 · 2 posts · 0 votes
6y

@Dave Foster,

Does it matter that the rental was my primary residence before moving into my new primary? I'm coming to terms with having a large tax bill, but there seems to be nothing more I can do.
Can I atleast choose which property to claim the exclusion?
0 Reply
Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
6y
Yes. It would mean that you qualify for the 121 exclusion on both of the properties. But you would have to choose one or the other since you can only do one of those exclusions every two years. You would get to choose.

And just remember - no one ever went broke paying tax on gain :)
The 1031 Investor5140 Reviews
Website View Page
0 Reply
Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
6y
@David Gates

You should see if you can do section 121 exclusion on one home and maybe QOF on another home.
[email protected]917-280-8544
Basit Siddiqi CPA4.880 Reviews
View Page
2 Reply
Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
6y
@David Gates

You did not provide the timeline of your purchases and sales, so we have to guess. If you lived in Property A for 2+ years, then rented it, and it was less than 3 years between the date you moved out of it and the date you sold it - then Property A qualifies for the exclusion. You will, however, have to pay taxes on the depreciation taken since you moved out.

If you moved into Property B and then lived 2+ years there before it was sold - then Property B also qualifies for the exclusion. One possible complication: if, before moving into Property B, you used it as a rental or in some other way, your exclusion for Property B is only partial.

If both properties qualify, you can only apply an exclusion to one of them. You cannot apply it to both or split the exclusion between them.

The other property have these options to consider for capital gain deferral:
1. 1031 exchange. Only for a rental property, and too late anyway, because it has been sold.
2. Monetized installment sale. It is controversial and has been discussed on this forum on multiple threads - search the forum.
3. Qualified Opportunity Zone funds. Has also been discussed a lot here.
You brought up a partial exclusion. I have to guess that you sold either Property A or Property B before the 2-yr mark. Having a car stolen would not fly as an excuse. I have defended clients against the IRS for over 20 years, but I can't use this one as a justification for changing residences with a straight face.
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.