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Husband and wife purchase a marital residence in 2012. They…

Husband and wife purchase a...
Husband and wife purchase a marital residence in 2012. They divorce in 2015. Wife receives house in divorce. Wife moves to another state in 2016, but rents house until sold in 2017. Is wife entitled to exclude gain on sale ($25,000.) under the provision of tax law that gain on sale of personal residence is excluded if owner lived in house as personal residence of owner in 2 of the past 5 years?
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4/13/2018
Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Tax
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Hi Stanley,

My name is***** will assist you today.

Please give me one moment while I review your question and type my initial response

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From what you have stated the wife has met both the ownership and use test to qualify for the exclusion of up to $250,000 for single taxpayers under IRC 121.

____

To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have:

  • Owned the home for at least two years (the ownership test)
  • Lived in the home as your main home for at least two years (the use test)

Gain

If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).

  • If you can exclude all of the gain, you do not need to report the sale on your tax return

Please let me know if you have any additional questions.

When you have no further questions please take a moment to accept the answer so I am credited for my work. A positive rating of 5 stars is much appreciated.

Thank you!

Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Tax
Satisfied Customers: 2,758
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Customer reply replied 4 months ago
Wife reported the rent, and depreciated the house. Does a portion of the sale get reported on Form 4797, and the balnce of the sale price and gain be excluded under Section 121?
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The sale will be excluded from reporting if the gain was under $250K-- You would use the depreciation that was "allowed or allowable" in the calculation to determine if the net proceeds was above over below $250K, but if the net proceeds is below $250K then you don't report the income.

"If you can exclude all of the gain, you do not need to report the sale on your tax return"

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