How long do I need to be married to qualify for the 500K the real estate exclusion?

[cuantoes]

We both have lived in the same property as our primary residency for over 5 years. The property is under my name and we are getting married. I just need to know if there is a "waiting period" before selling, or is it enough just to be married prior to the sale (even for a week) as long as the marriage happens is in the same tax year where the sale takes place? I also assume there is no need to add the second person to the deed before selling. We are in NY. Thanks.

[SweetieJean · Accepted solution]

$500,000 Exclusion for Married Couples

There are certain additional requirements you must meet to qualify for the $500,000 exclusion. Namely, you must be able to show that all of the following are true:

• you are married and file a joint return for the year
• either you or your spouse meets the ownership test
• both you and your spouse meet the use test, and
• during the 2-year period ending on the date of the sale, neither you or your spouse excluded gain from the sale of another home.

[jsc201603]

Good answer - filling in the one unspecified piece of information, you could have gotten married December 30 and closed the sale December 31 and still qualify, provided that each of you had used the house as your primary residence for 2 of previous 5 years, up to date of sale.  Test is use, not marital status.  (Doesn't require the same two years)

[cuantoes]

Many thanks!

[jsc201603]

YW - should have added that I am a TurboTax employee using my personal account

[atxfak]

Can you do the opposite?    That is:   Sale on December  30, married on December 31.  Only one partner will be listed as the seller at closing, reporting as single in the sale documents.  All of the above requirements for a full $500k exclusion are true.

[TaxGuyBill]

It can be done immediately.

[cuantoes]

Thank you. Since we are not planning to sell until spring 2017, we'll then wait to get married in that calendar year.

[Daisy31]

Did you ever get an answer?  I have the same question. I think the answer is yes based upon my reading of the rule but I can’t seem to find anything to confirm that my reading is correct. 

[Opus 17]

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@Daisy31 wrote:

Did you ever get an answer?  I have the same question. I think the answer is yes based upon my reading of the rule but I can’t seem to find anything to confirm that my reading is correct. 

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This is a 6 year old discussion, we don't know what you are asking.

Remember that the exclusion requires you own the home for at least 2 years and live in the home as your main home at least 2 of the past 5 years (at least 730 days, they do not have to be consecutive).  Marriage imparts ownership but not residency.  If you marry a person who owns a home, you are deemed by the tax law to own the home for as long as they did, if you file a joint return.  But marriage does not make you a retroactive resident of the home.  

The IRS states "for a married couple filing jointly, only one spouse has to meet the ownership requirement."  That mean that it would be possible to claim the full exclusion if the home was sold before the marriage, as long as:

1. both spouses lived in the home as their main home for at least 2 years prior to the date of the closing, and

2. you are legally married as of December 31 and file a joint return, and

3. neither spouse used the exclusion in the 2 years prior to the closing date of the current sale. 

[NCperson]

@cuantoes let me throw in some examples

Say Spouse A and Spouse B each own a home that they have each lived in for over 2 years.  During the tax year they marry and Spouse A moves into Spouse B's home.  

They decide to sell Spouse A's home (immaterial whether they sold the home prior to or after the marriage date - what is critical is they file Jointly in the tax year of the sale).  There would be a $250,000 exclusion; as it would be deemed that both spouses OWNED the home for at least 2 of the last 5 years,  BUT only Spouse A could meet the two of the last 5 year residency test.  So only a $250,000 exclusion and not a $500,000 exclusion. 

Now they decide to sell House B. 

There is certainly a $250,000 exclusion as Spouse B owned and lived in the home for 2 of the last 5 years. 

Spouse A meets the ownership test be virtue of filing Joint with Spouse B. 

But for Spouse A to qualify for a $250,000 exclusion, Spouse A must be able to demonstrate residing in House B for at least 2 of the last 5 years AND the sale date has to be at least two years after the sale date of House A (because you can only use one exclusion every two years).