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Capital gains tax on sale of home after divorce

Seattle, WA |

I legally separated (moved out) from my ex-wife in May 2006, and divorced in Jan 2007. She currently lives in the house that we own jointly, and we are considering selling it.

Since I lived in the house more than 2 of the last 5 year, I don't expect to pay any capital gains taxes. But, If we decide to sell the house after May 2009 I would have lived in the house less than 2 or the last 5 years. Should I expect to pay capital gains taxes if we sell after May 2009?

Or is there some weird loophole since we are legally divorced and separated?

Attorney Answers 1

  1. The answer from the IRS has been this: you only get the full $500,000 if you sell during the tax year in which you were married and filing a joint return. Otherwise, the tax code sees you as single, and then you're limited to $250,000.

    Under WA rules you should not own the house together as community property or as H/W. I imagine your ownership is as joint tenants in common. She gets the $250,000 credit in her own name. You need to qualify for your own exemption which means that your expectation to pay capital gains after May 2009 is correct.