Tax Guru – Ker$tetter Letter

Q:

Subject:  a question

Dear Expert
In the sale of a residence do the two out of 5 years of married and occupancy need to be consecutive to get the married deducion?
 Could I have the first of the five yrs with my husband and and then remarry and re occupy in year five and get the married deduction?
Help

A:

If this is a real world issue, you and your new husband need to work with your personal professional tax advisor to see how to report the home sale.

If, as it seems, this is merely a hypothetical question, you should take a look at this section of IRS’s Publication 523 which deals with this issue. 

Your question actually covers two different matters.  The non-consecutive issue is easy.  The rules have always allowed any amount of consecutive or non-consecutive time totaling 24 months within the 60 months prior to the sale. This is the case for the same taxpayers.

It’s quite a different story for a case with different taxpayers, such as a new husband.  Your new husband can’t count the time your previous husband lived in the home as his own.

While in this scenario, you wouldn’t be able to exclude the full $500,000 maximum gain, you would qualify for an exclusion of $250,000 and your new husband would have a pro-rated exclusion.  Depending on the size of your actual gain, that combined exclusion may be enough to shelter it all.

Again, if this is a real situation, your own personal professional tax advisor will be able to crunch your numbers for you.

Good luck.

Kerry Kerstetter