Can I use the principal residence exclusion for two houses simultaneously?

August 12, 2011

From:  Rosarin
Date:  26 Mar 2009

I have two houses I am planning to short sell because my husband lost his job. Both qualify for the exclusion from gain for sale of a principal residence. We have lived in our current home for over two years and we also lived in the previous home for two of the last five years. If I short sell both of them, would they both qualify for the exclusion for cancellation of debt for a principal residence?

Thank you for your time.

RD

Answer

Date:  6 Apr 2009

Hello Rosarin,

No. Different rules apply for determining whether a residence is a principal residence under the cancellation of debt rules, which is based on whether the residence qualifies as a principal residence for deducting mortgage interest.

You can only have one principal residence at a time under these rules, which would be your current residence.

Good luck!
Mike Gray

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