Does my ex-husband get a tax break when I sell our house?

September 23, 2011

From:  Bill
Date:  Wed, 30 May 2007

Dear Michael,

My neighbor is currently trying to sell her house, which was purchased during August 1995.

She was divorced from her husband in September 2004 and she and her children have been living in the house. Her ex-husband moved into an apartment.

When the house is sold, both should receive about $127,000.

Does her ex-husband have to pay taxes on his portion of the sale since he has not resided in the house for about 3 years?

Does the two years principal residence requirement apply to him as one-half owner of the house?

Bill

Answer

Date:  7 Jun 2007

Hello Bill,

Congress anticipated this issue, which was a source of litigation under the old sale of residence rules.

Under Internal Revenue Code Section 121(d)(3)(B), an individual is treated as using a residence as that person's principal residence during any period of ownership when that person's spouse or former spouse is granted use of the property under a divorce or separation instrument and uses the home as his or her principal residence. (But no double dipping for exclusions for two homes for the same period.)

Therefore, each of the spouses should be entitled to claim a $250,000 exclusion for the gain on their shares of the residence.

Remember, the gain isn't determined based on what you "receive" from the sale, because a mortgage may be paid off with a portion of the sale proceeds.

Good luck!
Mike Gray

We have more answers to frequently asked real estate tax questions! We also offer up-to-date information about new tax real estate tax developments in Michael Gray, CPA's Real Estate Tax Letter.



Michael Gray, CPA
2482 Wooding Ct.
San Jose, CA 95128
(408) 918-3162
FAX: (408) 938-0610
Hours: 8am - 5pm PDT Monday - Friday

Find us on Facebook
Follow me on Twitter
Connect on LinkedIn
Connect on Google+
Our Blog
© 2018

Subscribe to
Michael Gray, CPA's
Real Estate Tax Letter!

We respect your email privacy

We respect your email privacy!