Sale of two rental duplex (portion considered Primary residence) eligible for gain exclusion on the personal portion?

[Richard1024]

Client purchased duplex rental property in 2016 (property #1).  Half was used as personal property and half used as rental.  In 2021, client moved out of first property, made it 100% rental and purchased another duplex (property #2) which became their primary residence (similarly 50% rented).  In 2023, property #1 was sold – an exclusion was taken at 50% since it was primary residence for two of the five years prior to sale (2019 and 2020).  In 2024, Property #2 was sold which they considered primary (50%) since purchasing in 2021.  Is this second property sale eligible for gain exclusion on the personal portion?  Or would the two year limit apply?

Other factors –They sold property #2 and moved over 1,200 miles away and bought another property (not a rental).  individual retired from the military in 2023 and had up to one year from the date retired to use government -paid move.  Would any of these other factors be considered as an exception to the two-year limitation?

[BobKamman]

You can't claim the exclusion for a 2023 sale and then claim it again for a 2024 sale.

Code Section 121(b)(3) Application to only 1 sale or exchange every 2 years

Subsection (a) shall not apply to any sale or exchange by the taxpayer if, during the 2-year period ending on the date of such sale or exchange, there was any other sale or exchange by the taxpayer to which subsection (a) applied.

[Richard1024]

Thank you for providing this information.  I thought there may have been an exception for service members but the code section is clear on the limitation of one sale every 2 years.

[George4Tacks]

https://www.irs.gov/publications/p523#en_US_2024_publink100073089