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AND THE MARITAL HOME IN NEW YORK STATE
Janice Page, CPA, MBA
marital home is often the largest asset of the marriage and linked with many
All these emotional and financial issues must be considered before its
distribution is finalized.
The financial points that need to be addressed are listed below and are
organized in the following manner: The Sale
of the Home: tax issues, equitable distribution issues to be considered and
planning points; Mortgage Interest and
Real Estate Taxes: tax issues and planning points.
THE MARITAL HOME- tax issues
husband and wife have lived in and owned their primary residence 2 out of 5 years
from the date of the sale, then they may exclude the first $500,000 of gain from
If they are already legally separated or divorced and filing as single or
head of household, and title is one name, then the gain exclusion is $250,000.
The ability to use this provision is limited to once every 2 years, with
If gain exceeds these limits, or the gain was earned in less than 1 year
at the time of sale capital gains rules apply.
spouses have joint ownership of the marital home and one moves out giving
exclusive possession to the other spouse, the departing spouse can take
advantage of the tax benefits as mentioned above when the house is sold.
Also, if the house were transferred to the remaining spouse from the
departing spouse, the remaining spouses holding period includes the period that
the transferor-departing spouse owned the property.
a husband and wife own and live in separate residences, each spouse is
entitled to a separate exclusion limit of $250,000 on the sale of his or her
residence. If both residences are sold in the same year and each spouse met the
ownership and use test for his or her separate residence, two exclusions may be
claimed (up to $250,000 each), either on a joint return or on separate returns.
a home is transferred between 2 spouses within 1 year of divorcing, and it
is incident to a divorce, no gain or loss is recognized. The transferor's basis
for the transferred property is carried over to the transferee.
This nonrecognition treatment is not available to spouses or former
spouses who are nonresident aliens.
you received your home before July 19, 1984, in exchange for your marital right,
your basis in the home is generally its fair market value at the time you
a couple is forced to sell their principal residence before meeting the 2
out of 5 year ownership and use tests because of a change in their place of
employment or health or "unforeseen circumstances", the
exclusion is prorated. As of December 2002, the IRS issued temporary regulations
that defined divorce or legal separation, among others, as “unforeseen
The IRS allocates the exclusion on a daily basis:
count the lesser of the number of days of use versus the number of days
of ownership and divide the sum by 730 days (365 x 2).
For example, if a couple lived in the home 365 days and owned it 183 days
the gain exclusion is $125,342(183/730 x $500,000).
1997 Tax Act eliminated the prior rules for selling a home that related to
deferring gain and the $125,000 gain exclusion for people over the age of 55
due to these prior rules relating to the ability to defer gain on the sale of
the primary residence prior to 1997, the basis of the home currently owned may
be very low. Look
at forms 2119 filed with the IRS for all home sales prior to 1997.
Has gain been deferred?
Don't assume the basis of the home is the cost at which the current
marital home was purchased.
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