Home Sale Gain Exclusion Quirk
What if an unmarried couple have been living together for several years, but only one of them owns the home they are living in. They decide to get married, sell the home they live in, and buy another. Does it make any difference if they sell the home before or after they get married?
Oh yes, a big difference. If the home sells before they are married, it is sold by a single individual and the maximum gain exclusion is limited to $250,000. However, for a married couple the exclusion is $500,000 if all the following are true.
-
Either the taxpayer or spouse meets the ownership test.
-
Both the taxpayer and spouse meet the use test.
-
During the 2-year period ending on the date of the sale, neither excluded gain from another sale.
If they get married, one satisfies the ownership test, and since they had been living together for several years, they both meet the 2-year use test, and as long neither has sold a home in the prior two years, they will qualify for up to a $500,000 exclusion. It makes no difference that they were not married at the time they met the use test.