Tax question - IRS Section 121 and Co-ownership

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Tax question - IRS Section 121 and Co-ownership

Post by jplee3 » Thu Feb 13, 2020 11:54 am

Hi all,

Wanted to pose an interesting question for feedback:

Is there anything in IRS section 121 that speaks to the impact on holding periods when there is an increase in ownership interest in the context of a property that is co-owned?

For example: Party A (parents) and Party B (child) co-own a property (condo unit, not a multi-family or duplex) 50/50, where only Party B resides in the condo and has resided there for a decade. Party A decides to quitclaim deed their 50% ownership to Party B (lets just say as a gift). Now that Party B has retained full ownership, can they go and sell the property and qualify for the capital gains exclusions provisioned under section 121 *without* needing to reside there for another two years?

My understanding is that if Party A fully owned this property and outright gifted it to Party B in full, Party B would definitely be required to pass the ownership and use test and live there for at least two or more years.

However, I don't see where in section 121 it would address the situation I presented (which is based on the premise that co-ownership was already established and there is now an increase in one party's ownership...).


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Re: Tax question - IRS Section 121 and Co-ownership

Post by MarkNYC » Thu Feb 13, 2020 3:26 pm

The ownership provisions of Sec. 121 do not require 100% ownership in order to qualify for the exclusion.

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