J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

29.3 Home Sales by Married Persons

Where a married couple owned and lived in their principal residence for at least two years during the five-year period ending on the date of sale, they may claim an exclusion of up to $500,000 of gain on a joint return. Under the law, the up-to-$500,000 exclusion may be claimed on a joint return provided that during the five-year period ending on the date of sale: (1) either spouse owned the residence for at least two years, (2) both spouses lived in the house as their principal residence for at least two years, and (3) neither spouse is ineligible to claim the exclusion because an exclusion was previously claimed on a sale of a principal residence within the two-year period ending on the date of this sale. If Tests 1 and 3 are met but only one of you meets Test 2, your exclusion limit on a joint return is $250,000. However, even if the two-out-of-five-year use test is met, “nonqualified use” after 2008 may limit the exclusion you can claim; see 29.2.

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Caution

Exclusion for Married Couple

For a recently married couple, the exclusion limit on a joint return is $250,000, not $500,000, where only one of the spouses has satisfied the ownership and use tests before a sale. Gain in excess of the $250,000 exclusion is reported on Form 8949 and Schedule D.

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EXAMPLES

1. You and your wife owned and occupied ...