Author Topic: Main Home Sale and Marriage  (Read 2057 times)

EricP

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Main Home Sale and Marriage
« on: July 14, 2015, 09:58:29 AM »
I got married in April.  When I got married, I moved into my wife's house and roughly 2 months later we started renting out my former house. At the time of my marriage, I had resided in my home for 20 months. 

We have not decided whether we are going to sell the house or not, but if we plan to sell it in the next 3 years, what can we do to get the Capital Gains excluded?  Can a married couple reside in two houses simultaneously?  Will we need to move back in completely for a few months? It is also highly likely that I will be forced to move because of work in the next year.  Will I be able to use that to exclude the sale of the home even though that wasn't the exact reason why I moved, but a reason why I couldn't move back in or am I just completely hosed?

Lastly, I'm in the military, so does this line "You could not have reasonably anticipated the situation when you bought the home" basically render the work-move exception null and void?  I mean, I pretty much knew I was going to move at some time, just not when.

AZDude

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Re: Main Home Sale and Marriage
« Reply #1 on: July 14, 2015, 10:06:41 AM »
Reading through the laws and some explanation, I think you are just hosed and will have to pay the tax, but I'm playing amateur lawyer here, so might not hurt to ask a local real estate attorney, or even real estate agent(since their advice might be free if they think they can sell the house for you).

seattlecyclone

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Re: Main Home Sale and Marriage
« Reply #2 on: July 14, 2015, 11:34:12 AM »
There's actually a special rule for military personnel that lets you disregard up to five years of non-occupancy when you're serving away from the house. This means that you only need to have lived in the house for two years out of ten (rather than five) when doing your calculations, provided you were on official duty elsewhere for at least five of those years. However it does appear that you still need to have lived in the home for at least 24 months. So if you move back into the house for four months you could then serve elsewhere for several years while renting the house out and still have the capital gains exclusion as long as you sell before the 10-year mark.

Also, not to encourage tax fraud, but how does the IRS know exactly when you moved? As far as they know, you and your wife decided to try living in your house for a couple of months, then decided to rent it out later.

EricP

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Re: Main Home Sale and Marriage
« Reply #3 on: July 14, 2015, 03:27:00 PM »
There's actually a special rule for military personnel that lets you disregard up to five years of non-occupancy when you're serving away from the house. This means that you only need to have lived in the house for two years out of ten (rather than five) when doing your calculations, provided you were on official duty elsewhere for at least five of those years. However it does appear that you still need to have lived in the home for at least 24 months. So if you move back into the house for four months you could then serve elsewhere for several years while renting the house out and still have the capital gains exclusion as long as you sell before the 10-year mark.

Also, not to encourage tax fraud, but how does the IRS know exactly when you moved? As far as they know, you and your wife decided to try living in your house for a couple of months, then decided to rent it out later.

I Notified the USPS of change of address so that would be one easy way for them to know and prove what happened.  And even including the time before I got renters, I am still 2 months shy of the full 2 years.

Drifterrider

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Re: Main Home Sale and Marriage
« Reply #4 on: July 15, 2015, 05:29:32 AM »
I got married in April.  When I got married, I moved into my wife's house and roughly 2 months later we started renting out my former house. At the time of my marriage, I had resided in my home for 20 months. 

We have not decided whether we are going to sell the house or not, but if we plan to sell it in the next 3 years, what can we do to get the Capital Gains excluded?  Can a married couple reside in two houses simultaneously?  Will we need to move back in completely for a few months? It is also highly likely that I will be forced to move because of work in the next year.  Will I be able to use that to exclude the sale of the home even though that wasn't the exact reason why I moved, but a reason why I couldn't move back in or am I just completely hosed?

Lastly, I'm in the military, so does this line "You could not have reasonably anticipated the situation when you bought the home" basically render the work-move exception null and void?  I mean, I pretty much knew I was going to move at some time, just not when.

I have not worked in a CPA firm for 15 years and have not kept up with the law however (and you can do some reading at www.irs.gov): if you did not qualify for the full two years out of five years, you could pro-rate [qualified for one year of five; exclude 50% of the capital gain up to the limit.  Now that you are married, the limit doubles].  As to the military clause, you need PCS orders if you are trying to claim that exclusion.  Do your reading, do the math and don't try to cheat the tax man:  it just isn't worth it.