15 Nov Do we get the exemption when we sell our Jersey home?

Q. My wife and I have owned and lived in our present home in New Jersey since 1996. We also own a vacation home in Florida and we plan to move there, but first we are doing renovations to the New Jersey home before we sell it. We will spend the winter months in Florida, then sell the Jersey home in the spring with a gain of around $170,000. If we become residents of Florida before we sell the Jersey home, do we still qualify using the “test” of living in the house for two out of the five preceding years, thereby qualifying us for the capital gain exemption?
— Making plans

A. Congrats on the big decision, but New Jersey is sorry to lose you.

Prior to a law change in the late 1990s, it was unclear for taxpayers in your situation who own multiple residences whether they qualified to exclude the gain from the sale of their longtime principal residence when it was on the market and the taxpayer had moved into another residence.

Often the former principal residence was rented while on the market to produce cash flow, which potentially tainted the residence as far as claiming an exclusion for the gain realized upon sale, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Holmdel.

Current law makes the question clearer.

This provides an exclusion from gain of up to $250,000 for all sellers, or $500,000 if your filing status is married jointly, if during the five year period ending on the date of sale the residence was both owned and used by the taxpayer for a period aggregating two or more years.

What this means is that a taxpayer can move out of their longtime residence and as long as they sell that residence within three years, they qualify for the gain exclusion.

“When a taxpayer owns multiple residences, rather than counting specific days for determining use of a residence, a ‘majority of the year’ test is utilized to determine which residence constitutes the principal one,” Becourtney said.

In your situation, you indicate that you intend to become a Florida resident as of the start of 2020. You intend to put your New Jersey residence up for sale next spring.

“You will have until the end of 2022 to sell the New Jersey residence to meet the ‘two out of the preceding five years’ requirement for excluding your gain of approximately $170,000 before closing costs are considered,” he said.

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This story was originally published on Nov. 15, 2019.

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