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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 personís principal residence during any period of ownership when that personís 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 isnít 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

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