Girl friend moved in June 2004. They married April 2005. Husband now wants to sell the house and take the $500,000 exclusion before 2 years use by the married wife.Husband owned the house and lived in it as a single person since 2001. Girl friend, now his wife is not on title.I am getting several opinions that say, what am I concerned about. The girl friend did not need to be married to get credit for her use of the home. Does this mean that Sec 121 was a loophole so that a live in couple could go to city hall and marry the week before closing and pick up another $250,000 exclusion. Your thoughts will be appreciated. Regards bob
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Yes, he would get the $500, 000 Sec. 121 exclusion. This is similar to the Example on page 13 under Ownership and use tests met at different times. Pub. 523.
Since she live there for two years, she would qualify for the use test even if she wasn’t married for the two years. -
did I read
something wrong? Where is her two year ownership?Comment
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Only one spouse has to pass the two years ownership test, both has to pass the two years use test.Comment
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$500,000
Dear Robert
Yep, $500,000 it is (or the actual gain, if less). Please see Code §121(b)(2)(A).Roland Slugg
"I do what I can."Comment
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Sec 121 Exclusion for Girl Friend
Roland, thanks for the code reference. Will check out after my AM coffee. Regards BobComment
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The original post said that the sale would occur prior to the two year use test by the new wife.Originally posted by Roland Slugg
If that were true, the husband could only exclude $250,000, not $500,000, because only one passed the use test of code section 121(b)(2)(A)(ii).
However, given the facts cited in the post, the wife originally moved in June of 2004 as a girl friend and used the house as her residence, even though she did not own it and was not married at the time. As long as the sale occurs after June of 2006, she meets the use test even though she did not own the house. Only one spouse has to meet the 2 year ownership test, but both spouses have to meet the 2 year use test, which in this example, both do.
Therefore, under these circumstances, the $500,000 exclusion is allowed provided the sale is after June 2006, both lived in the home for at least 2 years, and one owned the home for at least 2 years.Last edited by Bees Knees; 12-04-2006, 11:58 AM.Comment
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What year is this?
Yes, he did say that, but it seems clear from the context that he meant that the woman might not have been his wife for two years when the house is sold. I believe the reason for the post was because Mr. Ellsworth wasn't sure if the pre-wife occupancy time could be counted.Originally posted by Bees KneesWell, since it's now December 2006, and the post says the husband now wants to sell the house, I don't think this is an issue, is it?Originally posted by Bees KneesRoland Slugg
"I do what I can."Comment
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I think unregistered answer the question in the first responseOriginally posted by UnregisteredComment
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sec 121 continued for girl friend
Thanks to all. In closing I likly am being overly concerned. Just seems strange that a couple could live together several years and then go get married a week before escrow closing and pick up and added $250,000 exclusion.So goes life in congress and the big city. My client will have filed 3 MFJ returns by the time escrow closes. 2005,2006 and 2007. Again the question is[ DO THE UNMARRIED MONTHS COUNT FOR THE GIRL FRIEND PRIOR TO MARRIAGE APRIL 2005] This extra $250,000 exclusion provides a $65,000 tax saving in California.15% Federal Long Term gain and Calif. 9.3% ordinary income rate. Thanks to all for your thoughts on the issue. Regards bobComment
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they weren't married
>>Do the unmarried months count for the girl friend<<
Of course not. How could it be her "primary residence" if they weren't even married?Comment
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Pub 523 year 2006 page 16
I just completed worksheet 3 page 13 pub 523 and even if we only count the married days the wife still picks up and added 91.1% of the $250,000 based upon closing January 2007 365 days April 2005 to March 2006. 300 days April 2006 to January 2007. What a brain buster!!! Have a good one. The letter to my client is for $477,750 minimum exclusion based upon the worksheet.I finally feel I am on firm ground.Comment
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Our good friend jainen was joking. There is no requirement that a person be married to the homeowner to treat the home as his or her primary residence.Comment
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Robert
Here is the part of §121 that covers your scenario. Note it does not require that the taxpayers be married two years - it simply requires that they file a joint return in the year of the sale. Caps are added for emphasis.
(2) Special rules for joint returns.
In the case of a husband and wife who make a joint return for the taxable year of the sale or exchange of the property—
(A) $500,000 limitation for certain joint returns. Paragraph (1) shall be applied by substituting “$500,000” for “$250,000” if—
(i) EITHER spouse meets the ownership requirements of subsection (a) with respect to such property;
(ii) BOTH spouses meet the use requirements of subsection (a) with respect to such property; and
(iii) neither spouse is ineligible for the benefits of subsection (a) with respect to such property by reason of paragraph (3) .
The reference to paragraph (3) refers to the section where you can only take the exclusion once in every two years. Not applicable to you.Comment
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Unforseen circumstance?
Why do you feel you can prorate the exclusion? What unforseen circumstance prompted the sale?Originally posted by Robert EllsworthComment
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