Capital Gain on Homes

My wife and I got married 2 years ago. Each of us owns a condo. She moved in to my condo and just use her condo to store her belongings.

We will move to another country at the end of the year and we are planning to sell both condos. My friend told me that I will have to pay capital gain tax on one of the condos. He suggested that I do a cash out refinance on one of the condos and rent it out instead to avoid the capital gain tax.

Condo 1 (where we live in now):
Purchase Price: $235K
Mortgage Balance: $195K
Approx. Market Price: $245K

Condo 2 (wife's condo):
Purchase Price: $135K
Mortgage Balance: $55K
Approx. Market Price: $225K

I would like to avoid the capital gain if possible, but I am not sure how to do that. What is the best option for my situation.

Any advice is greatly appreciated.

Did your wife live in the condo for at least 2 out of the last 5 years? If so, she would be exempt from paying capital gains taxes on it.

Dingobiscuit, thanks for the reply.

Yes, she did live there for more than 2 years out of the last 5 years. That was before we got married.

Can both condos be exempt from the capital gain tax? I heard you have to wait for 2 years to claim the same exemption. Does that mean I have to wait 2 years to sell the other unit?

Thanks

No, you can claim it at any point that you have lived 2 out of 5 years in your home. SInce you (and she) lived in YOUR home for two years, and she lived at least two in hers before moving in, then you both are exempt from capital gains taxes.

Delicioso,

Both Dingobisquit and Puck have given you the right idea, and generally correct information.

The time period is own and use as primary residence for a 24 month period in the 60 month period prior to the sale. Selling in this time frame will allow your wife to exempt up to $250,000 of gain.

From the date your wife moved from her condo, she has 3 years to sell and qualify for the gain exemption.

When you meet the ownership and residency requirements you can sell your condo and exempt $250,000 of gain also.

For more information see IRS Pub 523, Selling Your Home.

Thank you all for the information