Divorce and Residence

Today TaxMama hears from Joan in California, with this issue.

“I owned a house with my ex. We bought it together in 1985; but I left and he stayed.

Through a lengthy lawsuit costing me $25,000 the house was sold and I received $40,000. Once I left I never paid mortgage or upkeep. What is my tax position?”

Dear Joan,

Ouch, that was an expensive – and clearly unpleasant experience. What a shame that this should have been necessary.

You don’t say what the original purchase price was – or the sales price. Just because you only received $40,000, doesn’t mean the gain wasn’t much higher due to any refinancing that may have gone on. So I cannot give you a specific answer to your question.

But I can tell you your options. You have two ways to go.

1) It’s quite possible that if you add half the purchase price and the costs of the lawsuit to half the selling costs, you may have no gain at all.

2) If there does turn out to be a gain, there is a special provision for people in exactly your position. It came into law about 5 or 10 years ago. You get to take advantage of the $250,000 personal residence exclusion.

Read this: https://www.irs.gov/publications/p523/ar02.html#en_US_publink1000200746

Use of home after divorce. You are considered to have used property as your main home during any period when:

  • You owned it, and
  • Your spouse or former spouse is allowed to live in it under a divorce or separation instrument and uses it as his or her main home.

Hopefully, this provision will take care of any unforeseen gains you might have. Don’t you love learning that the law is in your favor for a change?

And remember, you can find answers to all kinds of questions about divorce and other tax issues, free. Where? Where else? At TaxMama.com

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