Divorced person's basis in home

[taxmancometh]

Divorced couple (husband has not lived in the home since Sept. 2004). The house was given to the wife in the settlement. The mortage was in both names until earlier this month; the deed, however, still remains in both names. The Final Order for Divorce was entered Aug. 2006.

Husband is trying to convince wife not to remove him from the Deed as it would "ruin the $500k exclusion when the house was sold". I explained to my client that since he has not lived in the home since 2004, it was a moot point and she needs to remove him from the deed.

Questions:
1) What is the time frame from when a divorce settlement is made and the house is sold can the full $500k exclusion be taken? I believe it is 2 years, am I correct?
2) When the house becomes the wife's (in this case), does she get a step up in basis for the husband's half to help lower her possible gain on the property when she sells it?

Thank you for your time!

taxmancometh

[Lion]

Answers, sort of

1. $500,000 exclusion only on a MFJ return; she won't be MFJ when she sells it, at least not with her ex-husband.

2. No. Not inherited. Just a transfer of property to her from him at same adjusted basis as it was the day before the transfer. Then any additions to basis she has from that date forward.

[taxmancometh]

Thank you

You just confirmed what I told her. I justed wanted to make sure something had not changed recently that I was not aware of. Unfortunately [for her] I was correct and nothing has changed.

I appreciate you taking the time to answer.

Many thanks,

taxmancometh