121 exclusion - jointly owned property

[natiro]

Client and his sister own property 50-50 unidivided interest. Both are married and both spouses are also on the title. Client and sister (and their respective spouses) live in separate homes on the property and both meet the use test. They have owned the property for 15 years.

They are selling the entire property including both homes. Does each couple get the full 500,000 exclusion? Remember the undivided interest part. . .does that affect the ownership test?

Thanks.

[Jan]

Definition of Undivided interest:
Title to real property held by two or more persons without specifying the interests of each party by percentage or description of a portion of the real estate.

but, if they are specifying 50/50 ownership, is it undivided interest?

I would think that both party would get the Sec. 121 $500,000 exclusion on there
portion of the property.

[Jesse]

Is there more on the property than the land and two homes?

From the information you provide it seems pretty straight forward and I agree with Jan. I don't see why they would not qualify for the Sec 121 exclusion.

But from past posts I know you hold much more knowledge than I and so by the lack of responses I'm thinking, is this a trick question?

[natiro]

121 exclusion

Nope, not a trick question!

Thanks for the answers.

[Lion]

Real Question

Is your real question, "Can one property be the primary residence for more than one household?" If so, I don't know the answer. I don't know if I can claim a property as MY primary residence when others outside my household reside here also. Is a shared property eligible as a primary residence, or is there an IRS definition of a shared residence? What happens when a commune sells their property on which many, many unrelated people have resided and owned and paid the bills? Do thousands of people get to exclude $250,000 EACH in profits? Too tired today (been teaching new tax preparers and head back in a couple of hours) to go to the Code, but am interested in the outcome of this thread. Keep posting the results of your research.

[natiro]

Sec 121

Thanks Lion for rewording the question with good examples. The property was inherited by the siblings. There are 2 manufactured homes on the property but due to zoning restrictions they cannot subdivide it. Each family lives in their own manufactured home, but title on the entire property is held jointly (well, actually title is held by both siblings and their spouses.) I guess my real question is, does each sibling pass the ownership test on the portion they live in if title is really held jointly with their sibling?

If they could have subdivided the property, this wouldn't even be an issue, and I would probably argue that it's substantially the same situation except zoning wouldn't allow a legal subdivision of the land.

[Gene V]

According to IR-2002-142, Dec. 23, 2002

Joint owners who are not married, up to $250,000 of gain is tax-free for each qualifying owner.
So I don't see why this wouldn't apply to married joint owners.
You can read more at

http://www.irs.gov/newsroom/article/0,,id=105042,00.html

[natiro]

Sec 121

Good point Gene, thanks. I haven't read the article or the ruling yet, but I will.

[Brian EA]

[If they could have subdivided the property, this wouldn't even be an issue, and I would probably argue that it's substantially the same situation except zoning wouldn't allow a legal subdivision of the land.[/QUOTE]


If zoning would not allow a legal subdivision then it is a problem. In this case the maximum 121 exclusion is $500,000. This means that each couple gets $250,00


brian

[newbie]

If zoning would not allow a legal subdivision then it is a problem. In this case the maximum 121 exclusion is $500,000. This means that each couple gets $250,00


brian

Why do you think that each couple would be limited to $250,000? If all four names are on the title why wouldn't it be per person?

[Kram BergGold]

Summary

I think Gene V pointed out that if two single people owned and lived in a single family house, then each would get a $250,000 exclusion. Ergo, if two married couples each have a home on the same piece of land then each couple gets the $500,000. Assuming they meet the use test and ownership test.

[Davc]

We have two seperate dwelling units. I think the legal aspects MUST be clarified. My understanding is that each owns 25% of their own principle residence and 25% of the other couples principle residence. So while each couple has the entire 500,000 exclusion available, it can only be used against 1/2 of their gain on the entire property assuming equal value for the homes..