Snowbirds seek home sale exclusion benefit

Judith Zeng

Q: My spouse and I are setting up to retire in Santa Fe. We have been alternating between residences in Tulsa, Oklahoma, and Scottsdale, Arizona. We are what they phone “snowbirds” in Arizona and this has intended we commit about half our time in Oklahoma and fifty percent in Arizona. We have owned the Oklahoma residence for 21 many years and it was our only home for most of that time. We bought the Arizona house about seven many years in the past. We anticipate to promote each residences and invest in what will be our remaining house in Santa Fe. My question is how to use the $500,000 exclusion for acquire from sale of a primary property. Each of our present-day houses meet the IRS 2-of-5 12 months possession take a look at. The Tulsa house ought to have a achieve of about $320,000 and the Arizona home may perhaps really exceed the $500,000. We could possibly continue to keep a person of the households for two far more several years if it is attainable to qualify both for the tax exclusion. If not we would desire to assert the exclusion on the Arizona home. We are both equally above 55 if that matters.

A: The exclusion involves that the house was your “principal” residence for two of the 5 years before sale. You can have only a person “principal” residence at any time.

This $500,000 exclusion was enacted in 1997. It replaced prior procedures that possibly authorized you to defer obtain by buying and selling up in price or to exclude attain if you were 55 or more mature. There is just just one rule now and age does not affect eligibility.

You recommend that you have used the two properties about equally about the earlier 5 several years. If you promote equally now only a single can be the principal residence qualifying for the acquire exclusion.

If you can declare the Arizona house as a principal residence, that also usually means the Tulsa residence was not. So to assert the exclusion two times you would have to occupy the Tulsa residence as a principal residence for at least two a long time just before sale.

I am assuming your description of use is exact. In the ideal circumstances, another person could have one particular residence qualify as a principal home for two a long time and then one more house for the future two yrs. Both equally could then be qualified for the exclusion.

There is a independent rule that the exclusion could only be claimed when every single two years. Even if both homes could qualify, providing both equally at the same time will not direct to two exclusions.

When this exclusion was designed in 1997 the legislative record manufactured it clear that the definition of a “principal” residence had not adjusted from prior law. Prior legislation explained it was based mostly on info and instances.

The polices give much more advice. Initially, for another person who alternates in between two houses for the duration of a 12 months, the house where they commit a majority of their time for that 12 months is ordinarily the principal residence.

This definition has been criticized for the reason that there are court docket situations the place a single residence might be the principal residence for five months and the other for 7 months, all inside the similar 12 months. The regulation indicates there is 1 principal residence decided year-by-yr.

To be fair, the regulation does say greater part of time is “ordinarily” how 1 establishes principal residence status. The regulation also lists other variables to look at.

Appropriate aspects incorporate spot of employment, exactly where relatives members are living, the address employed for federal and state tax returns, the state exactly where you maintain a driver’s license and sign-up your cars, and where by your voter registration is.

Other variables incorporate the mailing handle for correspondence, the place of banks (possibly a lot less sizeable with interstate banking), and the spot of religious or leisure companies with which you are affiliated.

I am requested this concern just about every couple of decades and I usually inform purchasers that the factors are equivalent to what a college would use to ascertain if you qualify for in-state tuition. My stage is just to suggest the aspects are rather standard and logical.

If you sell each homes this year, use the components earlier mentioned to figure out, as finest you can, which qualifies for the exclusion. Even if you are challenged you will acquire on a single of the revenue.

Jim Hamill is the director of Tax Apply at Reynolds, Hix & Co. in Albuquerque. He can be attained at [email protected]

 

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