Thanks All,

After posting my original message, I found more information
that made it clear that both houses can be excluded (each
for up to $250k) on joint returns.

See the "Nancy and Oscar" example in the "The Home Sale Gain
Exclusion" on the AICPA website:

http://www.aicpa.org/pubs/jofa/oct2002/foran.htm

The "Nancy and Oscar" example in that article is exactly
like my scenario, in the details that are relevant to my
scenario:

================================================== ===============
Example. Nancy and Oscar marry in 2001 and move into an
apartment. The couple each separately owned and used a home
for at least two years before marrying. Nancy and Oscar sell
their separate homes in 2002. Nancy realizes a gain of
$225,000 on the sale of her home and Oscar realizes a gain
of $275,000 on his sale. Although Nancy and Oscar do not
meet the requirements to exclude up to $500,000 of gain on
their joint return, each spouse may exclude up to $250,000.
Therefore, Nancy and Oscar will exclude $225,000 from the
sale of Nancy's home and $250,000 from the sale of Oscar's
home. Because Oscar cannot use any of Nancy's unused
exclusion, the couple must include $25,000 of the gain on
his home in income. The result would be the same if Nancy
and Oscar each had sold their homes before marrying.
================================================== ===============

Unfortunately, my wife's old house didn't, and my old house
certainly won't, sell for nearly as much gain as Nancy and
Oscar's houses did! :-)

Thanks,

Greg

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Greg Lovern wrote:

- quote -

I don't believe that they need to file MFS, nor would the
"once in 2 years" rule be violated because in one sale, only
A qualifies and in the other, only B qualifies. Neither of
them are selling more than one qualified home in the 2 year
window.

You may want to explicitly say which spouse qualifies on
each return by specifically listing the sale (and the
exclusion) instead of leaving it off.

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Greg Lovern wrote:

- quote -

Looks OK to me. Ask again after April 15, for a more
detailed response.

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A is single and buys a house. B is also single, and also
buys a house. Years later, A and B meet, get married, buy a
third house and move into it.

Two years later, A's original house is sold and passes all
tests for a Section 121 exclusion.

To pass the "Use Test", B's original house must be sold
within another year. But, would that fail the "More than one
home sold during 2-year period" test? (A and B weren't aware
of the "More than one home sold during 2-year period" test
until now.)

In my reading of Publication 523 ("Selling Your Home"),
especially pages 9 and 13, whether it would fail the "More
than one home sold during 2-year period" test seems to hinge
on how State law would determine ownership of the two houses
-- whether they are still considered to be each owned
separately by A and B, or both became community property on
the wedding date.

A and B have always lived in Washington State. The
Washington State Bar Association's web site has this
statement under "Marriage in Washington State" > "Property
Ownership":

Perhaps each of you owned property before your marriage,
such as stocks, bonds or other property either purchased
with separate funds, inherited or given to you. This is not
community property. Also, any inheritance received after
marriage is not community property. Such "separate" property
remains yours, and yours alone, as long as it is kept
separate from the community property. Husbands and wives
may, with appropriate documents, change separate property
into community property. <<

It's at:
http://www.wsba.org/media/publicatio...s/marriage.htm

This seems to indicate that the two houses bought before the
marriage would still be considered separate property in
Washington State -- unless A and B changed them into
community property with appropriate documents, which they
have not.

If A and B file a joint return with a Section 121 exclusion
(for less than $250K) for the sale of A's original house,
then sell B's original house a year later, can they take a
Section 121 exclusion (again for less than $250K) on B's
original house?

Would they need to file separately for the years that the
Section 121 exceptions are taken, with A taking the
exclusion for A's original house, and B taking the exclusion
for B's original house?

BTW, none of the exceptions on page 16, nor the "Special Situations"
on page 26, apply.

Thanks,

Greg

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