²²For example, in Example 1 in Part I of this article, T met the two-year ownership and use tests and qualified for up to $250,000 of gain exclusion from the sale of her Evanston, IL home.

²³A nearly identical situation occurs when each spouse sells a separately owned residence. They may take a Sec. 121 exclusion related to their separately owned principal residences up to $250,000 each; see Regs. Sec. 1.121-2(a)(4), Example (3).

²⁴See also Regs. Sec. 1.121-2(a)(4), Example (1).

²⁵See Regs. Sec. 1.121-2(a)(4), Example (5).

²⁶See Regs. Sec. 1.121-2(a)(4), Example (6).

²⁷Regs. Sec. 1.121-4(e)(1)(ii) leads to this conclusion. A close reading of this regulation may reveal other interpretations more favorable to taxpayers. For instance, the propertys combined basis is $465,000 ($160,000 for A and $305,000 for C). Thus, the total gain on the sale is $121,000 ($586,000 sale price $465,000 basis) and it might be allocated to each owner-spouse equally; thus, A would realize only $60,500 gain and no recognized gain. C also would have no recognized gain.

²⁸See the discussion of the three-year window in Part I of this article, under Multiple Residence Planning.

²⁹Gain exclusion would be taken on their 2004 and 2006 returns, so there is only one tax year in which an exclusion is not taken.

³⁰Temp. Regs. Sec. 1.121-3T(b)(f), (h), (k), (l) and identical Prop. Regs. Sec. 1.121-3(b)(f), (h), (k), (l), were issued on Dec. 23, 2002, along with the final regulations.

³¹See Temp. Regs. Sec. 1.121-3T(d)(3), Example (2).