Today TaxMama® hears from Greg in the TaxQuips Forum with a very common divorce issue. Let me paraphrase. “We got divorced. My wife and child stayed in our home. I made the payments. Now, when we want to sell it 7 years later, is there any way at all that I can get the personal residence exclusion?”
Well, I have good news for you.
1) Yes, you are entitled to claim the $250,000 personal residence exclusion
on your share of the profit when the house is sold.
There’s only one glitch here – the exclusion works if there is a divorce or separation agreement allowing this arrangement. Your agreement limited the arrangement to 5 years – not “5 years or until our son leaves home.” If you are audited, that could cause you a problem.
2) Personally, I would not have claimed those additional payments as alimony expenses. I would have used them to deduct the mortgage interest and property tax. But you survived audit…and you have proof of two successful audits, so the IRS may not audit this same issue again – IF you had a “no change” determination.
I hope you two can work this out amicably and reasonably.
For more great tips on how to save taxes during a divorce, please view our special resource – Tax Checklist for Knotty Divorces . This two hour course can help couples resolve issues fairly – and save thousands of dollars – in taxes and legal fees.
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