How to calculate Section 121 exclusion on primary home bought before marriage?

Thanks for the clarification! So to make sure I understand correctly - we can potentially qualify for the full $500k married exclusion even though I was only added to the deed recently? Does it matter at all that the house was transferred into our revocable trust?

Yes, you can potentially qualify for the full $500,000 married exclusion as long as: 1) at least one spouse (your wife) has owned the home for 2 of the last 5 years, 2) both of you have used it as your primary residence for 2 of the last 5 years, and 3) neither of you has claimed another Section 121 exclusion in the past 2 years. Transferring the house to your revocable trust doesn't affect the Section 121 exclusion. The IRS considers property in a revocable trust to still be owned by the grantors (you and your wife) for tax purposes. So all the same rules apply as if you held the property in your individual names.

I'm looking at something similar but different - my girlfriend and I bought a house together before marriage. We're now married and wondering how Section 121 applies. Does this tool work for unmarried co-owners who later get married?

Sounds convenient but how accurate is it for complex situations? I had a rental property that later became my primary residence and my accountant said the calculations get really complicated with depreciation recapture and partial exclusions.

For unmarried co-owners who later marry, the tool absolutely handles that situation. It specifically addresses ownership timing for each person and how marriage changes the exclusion calculation. The tool will break down each person's qualified use period and ownership period separately. For complex situations with rental conversions, the accuracy is impressive. The tool specifically handles depreciation recapture calculations and partial exclusions based on qualified use periods. It creates a timeline visualization showing exactly which periods count for the exclusion and which don't, including precise calculations for depreciation recapture amounts.

Wait, how does this actually work? I thought the IRS phone system was basically broken. They're actually going to call you back? Seems too good to be true.

Sorry but I'm skeptical. I've tried "priority" services before and they never work. IRS isn't going to prioritize a call just because some random service asked them to. How much did they charge you for this "miracle"?

It works by essentially navigating the IRS phone system for you and securing a callback spot. Instead of you sitting on hold for hours, they do it and then the IRS calls you directly when your turn comes up. It's not a priority line - it's just automating the wait process. I was skeptical too! I've spent countless hours on hold with the IRS before. The difference is they have technology that navigates the phone system and secures the callback option that the IRS does offer but is hard to get. It's not about priority - it's about efficiently securing a spot in the regular queue without you having to sit there listening to hold music for 3 hours.

That partial rental situation gets tricky! When we sold our place last year, we had to allocate between personal and rental use. You'll need to figure out what percentage of the home was rented (square footage) and for what duration. You might need to recapture depreciation on the rental portion (whether you actually took depreciation or not - the IRS considers it "allowed or allowable"). The good news is the Section 121 exclusion still applies to the personal use portion. Talk to a good CPA - ours saved us thousands by correctly calculating this allocation.

Thanks for the info! We haven't been taking depreciation deductions for that rental period, but I didn't realize we might still need to deal with "allowed or allowable" depreciation. The room was about 15% of the total square footage. Do you know if we need to do separate calculations for each ownership period (her alone vs. after marriage), or can we just do one calculation for the whole ownership period?

You'll need to handle the depreciation recapture for the portion that was rented (15% in your case) regardless of whether you took the deductions or not. The IRS considers depreciation to be "allowed or allowable" even if you didn't claim it. For your second question, you'll do one continuous calculation covering the entire ownership period. The fact that you got married during ownership doesn't create separate calculation periods. What matters is the total qualified use as a primary residence. You'll track the entire ownership timeline, identify the rental period for that 15% portion, and then calculate accordingly. The marriage itself doesn't reset or change the calculation method - it just potentially increases your exclusion amount from $250K to $500K if you both meet the use test.

I used H&R Block last year for almost this exact scenario and it worked perfectly. It walks you through all the ownership details and calculates the Section 121 exclusion correctly. TaxAct also worked for my brother who had a similar situation. Just make sure you have all your documentation ready - original purchase docs, documentation for when the deed changed, and any major improvements that would affect your basis.

Thanks! I'll give H&R Block a try. I've got all our documentation organized, including the substantial kitchen renovation we did that should increase our basis. Anything specific I should watch for when entering the info about the pre-marriage ownership period?

When entering the pre-marriage ownership period, make sure you correctly identify who owned the property during each timeframe. H&R Block will specifically ask about the ownership history. Be careful to enter the original purchase date and amount accurately for the spouse who owned it first. For your kitchen renovation, definitely include that as it increases your basis and reduces your capital gain. The software will prompt you to enter major improvements separately from the purchase price. Also, don't forget to include selling costs (like realtor commissions and closing costs) as they also reduce your taxable gain. The software does a good job walking you through all of this, just be methodical about following each step.