Publication 523 (2023) Question: Can a Married Couple Claim the $250,000 Exclusion for Two Different Homes?

This is a great question about Publication 523! The $250,000 exclusion ($500,000 if married filing jointly) is one of the best tax breaks available, but there are some important nuances when you have two homes. For your first question: When you file married filing separately, each spouse can only exclude up to $250,000 of gain from the sale of their main home. Since both homes are jointly owned, each spouse would typically report half the gain from each sale on their separate returns. You can't have one spouse claim 100% of the gain from one house while the other spouse claims nothing from that same sale - the IRS considers each spouse to own half of jointly titled property. For your second question: You don't have to file separately in years when you don't sell a home. The look-back rule examines whether you (or your spouse if filing jointly) have excluded gain from the sale of another home during the 2-year period ending on the date of the current sale. So you could sell House #1 in 2025 (filing separately), file jointly in 2026, and then file separately again in 2027 when selling House #2, as long as you're outside that 2-year window.

After struggling with a similar situation last year, I found this amazing tool called taxr.ai (https://taxr.ai) that really helped me understand Publication 523 and navigate selling multiple properties. I uploaded my previous returns and property documents, and it analyzed everything to show me the optimal filing strategy. What I appreciated about taxr.ai was that it laid out all my options with the tax implications of each - it showed me exactly how the look-back rule would apply in my situation and calculated the potential tax savings for different scenarios. It even created a timeline showing when I could sell each property to maximize my exclusions.

I just wanted to follow up about taxr.ai that I mentioned earlier. I decided to try it after all, and I'm actually really impressed with the results! I was planning to sell both properties this year but the analysis showed I'd save over $42,000 in taxes by selling my former rental now and waiting until next year for the cabin. The tool created this detailed timeline showing exactly when each property would qualify for maximum exclusion, and even factored in the depreciation recapture on my rental. It confirmed what others were saying about splitting the gains when filing separately, but also showed me some options I hadn't considered about timing the sales. Definitely worth checking out if you're dealing with multiple properties like this.

If you're having trouble getting answers directly from the IRS about Publication 523 questions, I'd recommend trying Claimyr (https://claimyr.com). I spent weeks trying to reach someone at the IRS about a similar situation with multiple properties and the $250,000 exclusion, but kept getting disconnected or waiting for hours. With Claimyr, I was connected to an actual IRS agent in about 15 minutes who answered all my questions about the look-back period and filing requirements. They have this smart system that navigates the IRS phone tree for you and holds your place in line - you can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent I spoke with gave me specific guidance about my situation that I couldn't find anywhere online.

I need to eat my words about Claimyr from my comment earlier. I was super skeptical, but I was desperate enough to try it after waiting on hold with the IRS for 3+ hours last week. I honestly couldn't believe it when I got a call back saying an IRS agent was on the line ready to talk to me. The agent walked me through exactly how the ownership test works for married couples with multiple homes and confirmed that we CAN file jointly in years between home sales without affecting the look-back period. She even emailed me the specific sections of Publication 523 that applied to my situation. I probably never would have gotten this information without finally connecting with a human at the IRS. So yeah, it actually works.

Another option you might consider is a 1031 exchange for one of the properties instead of using the primary residence exclusion. If one of the homes has appreciated significantly more than $250k, you could potentially defer all that gain by reinvesting in another property. Obviously, this only makes sense if you're planning to buy another property anyway, but it's worth considering as part of your overall strategy. You'd need to work with a qualified intermediary, and there are strict timelines (45 days to identify replacement property, 180 days to close), but it could potentially save you more in taxes than the primary residence exclusion.

Has anyone dealt with the "unforeseen circumstances" exception to the 2-year rule? My understanding is that if you HAVE to sell both homes within 2 years due to health issues, job relocation, etc., you might qualify for a partial exclusion even if you don't meet the usual look-back requirements.