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?
Estate Planning Attorney
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.