Thank you for using Just Answer. I want to provide you the best service I can. Please feel free to ask any follow up questions you have.
I am an attorney with 30 years of experience; I hope to provide you information that will help you in resolving your question.
Wow. You have a bit of a tricky one here. But you can take the $500,000.00 exemption
if you are married in the same tax year as the sale and file jointly.
Normally, eligibility for the exemption requires two elements. Ownership
and residence for two of the last five years.
If you married prior to the sale and filed a joint return you would clearly be eligible to take the $500,000.00 exclusion because you are entitled to the spousal exemption.
Since you are not married at the time of the sale the issue appears to be more complex. Your fiancee did not have an ownership interest in the house for two years prior to sale. Therefore, she does not meet the eligibility requirements as described by the IRS. She therefore would not appear to be eligible to claim the exemption as a co-owner.
See IRS publication 523:
BUT, the additional twist of fact is that you are marrying in the same tax year as the sale of the property, although after the sale. That actually works out for you. The IRS considers you married for the entire tax year in which you married. See IRS Publication 17:
Since the IRS considers you married for the entire tax year, the events that occurred in that Tax year can be applied to you both. This means you can claim the $500,000.00 exemption, but you must file jointly to do so.
I hope the information I have provided is useful to you. I want you to be comfortable and satisfied with my attempt to assist you. Please, if you have ANY follow up questions, feel free to ask. Please note that I am generally unavailable Friday evening through Sunday.
Please do not forget to give me a positive rating. It adds nothing to your costs but it helps me greatly. Thank you.
If you are dissatisfied with my response PLEASE let me know before giving me a negative review so that I may try to be of better assistance. Or if you prefer, let me know and I can “Opt Out” and your question can be re-posted without additional cost to you. I will be fair to you and only ask the same from you.
Please note: Information is educational and not given as legal advice. Only your local attorney can give legal advice. I can't establish or accept an attorney-client relationship with you. All posts are available for public viewing.