Lets break this into two parts:
Bought house [A] in 2019 for $590k. In 2021...sold house [A] for $754k in Dec.
...our principle place of residence.
Is there tax on the increased value of house [A]? ie. do we owe tax on
its increased value: $754- $590k = $164?
Using IRS pub 523:
Determine whether you meet the residence requirement. If you owned the
home and used it as your residence for at least 24 months of the
previous 5 years, you meet the residence requirement. The 24 months of
residence can fall anywhere within the 5-year period, and it doesn't
have to be a single block of time. All that is required is a total of
24 months (730 days) of residence during the 5-year period. Unlike the
ownership requirement, each spouse must meet the residence requirement
individually for a married couple filing jointly to get the full
So if this was the only house involved and the period of 2019 to 2021 covered 730 days then you qualify for the exclusion. If only one qualified for the exclusion, it would protect 250K of gains. Which your $164K gain is well under.
The issue is house you purchased in July 2021:
In 2021, bought house [B] for $915k in July and sold house [A] for $754k in Dec.
Both houses were our principle place of residence.
This is where the complication comes in. Also from Pub 523
Sale of your main home. You may take the exclusion, whether maximum or partial, only on the sale of a home that is your principal
residence, meaning your main home. An individual has only one main
home at a time. If you own and live in just one home, then that
property is your main home. If you own or live in more than one home,
then you must apply a "facts and circumstances" test to determine
which property is your main home. While the most important factor is
where you spend the most time, other factors are relevant as well.
They are listed below. The more of these factors that are true of a
home, the more likely that it is your main home.
The address listed on your:
- U.S. Postal Service address,
- Voter Registration Card,
- Federal and state tax returns, and
- Driver's license or car registration.
The home is near:
- Where you work,
- Where you bank,
- The residence of one or more family members, and
- Recreational clubs or religious organizations of which you are a member.
So if you shifted your principal residence to the new home, the first home might not qualify unless you met the 24 month rule before making the switch.