Q:

Subject: Home Sales

Dear Tax Guru,

I have read your Web page, on tax issues pertaining to the sale of my primary residence, however, I have a home sale question, that I am receiving conflicting answers from friends. Could you possibly respond to my query ?

I have filed my tax return for the past 35 years as " Married Filing Individually-Head of Household "

My husband lives out-of-State, and also files "Married  Filing Individually"

My husband and I have been seperated for 35 years, and the ownership of the Home is in my name only.

When we seperated, my husband agreed to the changing of the DEED to my name solely.

We did not divorce, as he provides me with health coverage from his retirement plan.

I would like to sell my home this year and am wondering whether I am entitled to the entire $500,000 exclusion on the Sale of my Home. I am concerned about the technicalities of the IRS Regulations on the sale of my home--that is to say, that by still being married, and filing Married but Individually, my husband has the right to $250,000 Capital Gain Exemption on his tax return or am I entitled to the entire $500,000 exemption.

My husband has not resided in mmy home for 35 years. Before I sell my home in Long Island, I would like to be sure that I would be entitled to the entire $ 500,000 exemption ?

Could you advise me on this matter, as I am so confused and fearful of making a mistake. Thank you,

A:

Your first very big mistake is soliciting tax advice from friends.  That's crazy.  You should be working with a professional tax advisor on matters such as this.   I hope you don't get all of your medical advice from your friends as well.  Tax issues are just like medical ones, unique to the individual person and very technical.

From the way you described your situation, you would only be entitled to an exclusion of $250,000 of profit on the sale of your home because you are the only person who meets the tests.  If your husband had lived in the home for at least 24 months out of the 60 months prior to its sale, you would be able to claim a full $500,000 exclusion if you file a joint 1040. 

This really isn't even a gray area.   The IRS rules are very clear on this point. 

You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true.

• You are married and file a joint return for the year.
  
• Either you or your spouse meets the ownership test.
  
• Both you and your spouse meet the use test.
  
• During the 2-year period ending on the date of the sale, neither you nor your spouse excluded gain from the sale of another home.

If the house is fully in your name, the sale will be reported fully under your SSN and you will have to show the full sales price on your 1040.  Your husband won't have to show anything on his separate 1040. 

Again, you should consult with a professional tax advisor to see if there are more details in your life that would warrant a different answer.  There may also be some tax saving strategies that could help, such as adding your husband's name back onto the deed.  An experienced tax pro should be able to suggest ideas such as that.

Good luck.

Kerry Kerstetter

Follow-Up:

Dear Kerry,

Thank you for the response to my query on Home Sales, i.e., the $500m or $250M capital gains exclusion based on joint or filing
singly returns deduction. I think it was very kind and generous of you, to return an answer by E-Mail, and I want to express my gratitude
to you, for taking time to assist me. You are indeed a humanist at heart, and I grateful you have that quality.

Thank you,

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 4/12/2006 03:51:00 PM Send this post: