500,000 exclusion on sale of residence
The 500,000 capital gain exclusion (MFJ) is only allowed on a Principal Residence. If a taxpayer sells both their Principal residence AND a second home - they are only allowed the 500,00 capital gain exclusion (MJF) on the PRINCIPAL residence - NOT a combination of both sales. What happen to me was that Incorrectly, I checked (screen 17), under Sale of Home, Sale of Home and 2 year use test met on BOTH of the sales. Because these boxes were checked on BOTH Sales - the program gave the taxpayer the 500,000 against both properties. It should have only allowed it for one property!! Yes, I should not have checked those boxes on both properties but feel that the Lacerte program should have given me a Diagnostic stating to be aware that only the Principal Residence can get the exclusion. This can be found in IRS Pub 523, on page 3 (left side).
