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Christopher Phelps
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience:  CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
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principle residence tax exemption

Customer Question

A married couple (who file their taxes seperately) own a house in Conn. and a house in Fla. They live in the house in Conn. 6 month's and the house in Fla. 6 month's . The wife has one house in her name and the other in the husbands name. One calls the Conn. home their principle residence and pay taxes to Conn. The other calls Fla. their principle residence and pays taxes to Fla. If they do this for 2 years can they sell one of the houses after the 2 years and take a $250,000 tax exemption off the profit? And if so can the continue to do this every 2 years by buying and selling one of the residences they are calling their respective principle residence?
Submitted: 11 years ago.
Category: Tax
Expert:  Christopher Phelps replied 11 years ago.

Eligibility for the Sec. 121 exclusion is determined on an individual basis.  As long as you continue filing separately, each spouse would be eligible to use the $250K exclusion every two years provided they owned and used the residence as their principal residence.  The only change I would make to strengthen your position would be for each spouse to live a majority of the year in "their" home. 

Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience: CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
Christopher Phelps and 5 other Tax Specialists are ready to help you
Customer: replied 11 years ago.
Reply to Christopher Phelps's Post: Thank You, XXXXX XXXXX thing I would question is that both people are retired and they own only one car. So the burden of proof for 2 seperate principle residence's for a married couple who for years filed their taxes jointly and now start to file seperately with no real income except one pension for the husband and no other income from the wife could become more difficult. What do you think
Expert:  Christopher Phelps replied 11 years ago.

Income is not really an issue in determining whether a property is a principal residence.  What matters is the amount of time spent at the property as well as other factors that connect each person to the area.  Examples include where your driver's license is, where your registered to vote, where your financial relationships are, where your familial relationships are, etc. 


Why not file MFJ and sell one house every two years and exempt $500,000 each time?   The strategy you postulated will work if you have to unload both houses within two years.  But why do it if you don't have too?   

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