Two people owned homes and sold them, then married in same year. All rules for exclusion are satisfied on both homes. Should they file MFJ or MFS?

[Sandy_Richardson]

They each lived in their homes for more than 5 years. After selling they married, moved out of state and he bought another home they live in now.

[rbynaker]

See if Example 3 helps:

https://www.law.cornell.edu/cfr/text/26/1.121-2

[Sandy_Richardson]

Thank you for this link. Example 3 is exactly the scenario. I have entered both homes in Schedule D, 4797 and home #1 netted $1,900 and home #2 netted $110,000.  Since both are under $250,000 per MFS or $500,000 MFJ shouldn't capital gains on 1040 equal zero?  My result is $59,000 showing in capital gains 1040, with no other entries. Why is it showing capital gains in income?

[sjrcpa]

Have got each home marked as Taxpayer or Spouse?

[Sandy_Richardson]

Yes, I do.

[sjrcpa]

By net, you do mean gain don't you?

Net cash received at sale has nothing to do with the actual gain on sale.

Obviously something is wrong with your input if gain on each home is under $250,000 and you're getting taxable gain ion the return.

[Sandy_Richardson]

I meant their net gain, meaning after expenses were taken from the gross sale price.  Yes, you are right that something was wrong. I got ahold of ProConnect and they looked at the entries. They said I had to select the marriage field this year and put in my client's wedding date.  This took care of the problem.  Thank you again.

[sjrcpa]

Glad you got it to work.

[Sandy_Richardson]

Thank you! I appreciate all the help.