Capital Gains Deferral on House Sale after divorce
Divorce took place about 15 years ago. Wife retained 50%
ownership of their home pursuant to the terms of the
divorce. Her husband was allowed to live there. Husband
continued to live in house; now plans to sell it.
My reading of the IRS publications indicates that the wife
can treat her ex-husband's occupancy of the house as if she
were there, for the purpose of determining her eligibility
for the capital gains exclusion.
However, wife has remarried and is now living in a house
which has a higher potential capital gain, should it be
sold. If she takes advantage of the capital gains exclusion
on the first home, and if the second home should be sold
within two years of the sale of the first home, then she
would not be eligible to defer the gain on the second home.
Question: If the wife takes the capital gain on the first
home and the second home gets sold within two years, is it
allowable to amend the return on which the gain was excluded
on the first home, in order to allow using the exclusion on
the second home? (The returns would be joint returns with
her current husband).
> Divorce took place about 15 years ago. Wife retained 50%
> ownership of their home pursuant to the terms of the
> divorce. Her husband was allowed to live there. Husband
> continued to live in house; now plans to sell it.
> My reading of the IRS publications indicates that the wife
> can treat her ex-husband's occupancy of the house as if she
> were there, for the purpose of determining her eligibility
> for the capital gains exclusion.
Yes, that's how I read it too, and that's how I treated a
client in similar circumstances.
> However, wife has remarried and is now living in a house
> which has a higher potential capital gain, should it be
> sold. If she takes advantage of the capital gains exclusion
> on the first home, and if the second home should be sold
> within two years of the sale of the first home, then she
> would not be eligible to defer the gain on the second home.
That would be correct on her portion of the gain in the
second home.
> Question: If the wife takes the capital gain on the first
> home and the second home gets sold within two years, is it
> allowable to amend the return on which the gain was excluded
> on the first home, in order to allow using the exclusion on
> the second home? (The returns would be joint returns with
> her current husband).
If she IS going to take the gains (ie: pay the tax) then why
would she amend them in the future?