Selling Two Homes

Today TaxMama hears from Hilde in Illinois who tells us. “Almost two years ago we moved from our last house after living there 4 yrs. We finally found a buyer. Since the sale will be in 2009, could we also sell our current home in 2009 and avoid paying income tax on the $50,000.00 profit we may have from each one of the houses? We will be in our current home more than 2 yrs before we sell.”

Dear Hilde,

That’s a very good question. And it’s something that some of tax pros have discussed with IRS over the years.

First of all, be sure you don’t run out of time on the first house. To get the personal residence exclusion of $500,000 ($250,000 for single folks) you have to live in the house for 2 years out of the 5 years before the date of the sale.

Second, what did you do with the house since you moved out? If it was rented, you will have some other considerations to take into account – like paying taxes on the depreciation.

http://www.irs.gov/newsroom/article/0,,id=105042,00.html
http://www.irs.gov/publications/p523/ar02.html#d0e2017

Since you’re selling it in 2009, if it was rented, you will have new considerations that will reduce that $500,000 exclusion.
http://www.irs.gov/businesses/small/industries/article/0,,id=98921,00.html

Now, back to your main question – can you ALSO sell your current home in 2009 and get the benefit of the personal residence exclusion for both homes in the same year?

NO!

Sorry. We beat this issue up in discussions with IRS, over and over. You get to use only one exclusion in a given year.

So,…see which residence has the largest profit and use the exclusion for that residence. Or, if you can, wait another year before you sell your current home. The sales price will probably go up anyway.

And remember, you can find answers to all kinds of questions about the personal residence exclusions and other tax issues, free. Where? Where else? At TaxMama.com

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