Sale of second residence in less than 2 years - First sold in July 2018, claimed exemption. Got job in Maine in July 2018 but stayed in second residence in MA until now.

[Colmatt]

First sold in July 2018, claimed exemption. Got job in Maine in July 2018 but stayed in second residence in MA until now.  Would like to move to Maine before two year.  Partial exemption - Move for job qualify if actually got the job in 2018 and sell before Aug, 2020? Owned both residences for 10 years and both really meet 2 out of 5 rule for one spouse or the other. 

Thank you

[itonewbie · Accepted solution]

Your terminologies and your conditional question/statement are a bit confusing.

I suppose your "first residence" vs "second residence" actually mean "former home" and "current home".

You added that the taxpayer "Would like to move to Maine before two year" but didn't your client already move in July 2018?  I suppose you meant that the plan is to stay in MA for two years after the move but your client may end up staying for a shorter period - the key question is what is the primary reason for selling the current home (see below).

It is also not clear what your question "Move for job qualify if actually got the job in 2018 and sell before Aug, 2020" actually means.  My understanding is that the taxpayer sold the former residence in July 2018 due to a change of employment and claimed the exclusion.  The reason for selling that former residence is no longer relevant now, just that the timing of when the last exclusion was claimed must still be considered.

To claim a partial exclusion under §121(c) and §1.121-3, your client's primary reason for selling the current home must meet the conditions prescribed in the regs.  You did not, however, explain in your question what the reason is or your basis for claiming a partial exclusion.

[Colmatt]

I am so sorry I was so unclear.  Yes former home and current home would be more appropriate.  

Taxpayers owned separate residences for over 10 years.  When they got married they lived exclusively in the former home which they sold in July 2018 and took the exclusion . They didn't sell that because of the job change, they sold to move to the current home which one spouse already owned.

Now, less than two years from the sale of the former home, they want to sell this current home in MA and move to Maine where one spouse got a job in 2018 but is sick of the commute.   

My understanding of the reg is that a partial exclusion is available ( if residential time under two years)  if the the move is due to a change of employment.  Does it matter that it took so long to move due to that change?

In this case the gain is $200,000 so worth waiting out the two years if the partial is not available.

I hope this clears up my question.  I REALLY appreciate your help.

[rbynaker]

To narrow it down some, you're looking at Regs under 1.121-3:

https://www.law.cornell.edu/cfr/text/26/1.121-3

You say the sale happened in July 2018 and the commencement of the job happened in July 2018.  Specific dates may matter and, IMO, the sale date is less important than the move date (which may be different and is not mentioned.)

For the safe harbor in (c):

"The change in place of employment occurs during the period of the taxpayer's ownership and use of the property as the taxpayer's principal residence"

If the timing was something like this:

6/15/18 Moved out of Old House to Spouse House
7/1/18 Started new job
7//15/18 Sold Old House

Then the 7/1/18 job commencement occurred during the period of ownership AND use as a principal residence.  So the safe harbor applies (assuming the 50 mi distance test is met).

If the timing was more like:

7/1/18 Started new job
7/15/18 Moved out of Old House to Spouse House
7/16/18 Sold Old House

Then the 7/1/18 job commencement occurred BEFORE the use as a principal residence.  So safe harbor is out and you're left with the gray area of "the primary reason for the sale".  It's facts and circumstances, but every day that goes by stretches the (b)(1) rubber band, "The sale or exchange and the circumstances giving rise to the sale or exchange are proximate in time".  While you can certainly make an argument under audit, I'd recommend they wait out the 2 years to lock this in.

Rick

[Colmatt]

Rick, You are exactly on target and now I see the light.  The first scenario is the case in point so wait it out they will.  Again, I really appreciate your help.  Sandy

[Colmatt]

I mean the second one of course....

[itonewbie]

@Colmatt Thanks for the clarification.  My question is when they were married and when the spouse who own the MA residence relocated to the former home.  The reason I bring it up is that if either spouse did not satisfy the use test for the former home (and does not for the MA home), the operative sections should be §121(b)(2) and §1.121-2, which state, in part, the following:

"For taxpayers filing jointly, if either spouse fails to meet the requirements of paragraph (a)(3)(i) of this section, the maximum limitation amount to be claimed by the couple is the sum of each spouse's limitation amount determined on a separate basis as if they had not been married. For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property."

Depending on when the spouse who own the MA home moved to the former home, if the 2/5 year rule is met, counting back 5 years from the time of the sale, that spouse may still be eligible for excluding a gain of up to $250k, figured separately for each spouse as if they were unmarried.

[itonewbie]

Omitted to mention that if this fits your clients' fact pattern, exclusion of the gain from the sale of the former home should have been determined in the same way also.

[Colmatt]

Interesting. I will digest that and see if it applies.  Thanks again.

[itonewbie]

NP.