Sec 121 exclusion?

[joanmcq]

Couple divorces and wife continues to live in home, which is located on a large urban lot. Because land prices have risen, wife agrees to sell entire property. Husband submits to the city a plan for a tentative map to subdivide the property. Wife will continue to live on the property until it is sold. Will she be able to take the Sec 121 exclusion even if the property is sold to a developer who will demolish the house?

[Luis Mopeo]

All of the provisions of section 121 apply to the time before the sale. There aren't any provisions for intent, other than the partial exclusion rules. I don't believe that a plan for subsequent subdivision or demolition has anything to do with eligibility for exclusion.

[jimmcg]

Agree with previous post. Whatever happens to the property subsequent to the sale is not covered by the provisions of S 121 whether the seller at the time of sale was cognizant of the buyers intent or not.

[Kram BergGold]

additional info

If the ex husband has an ownership interst in the property at the time of the sale he too gets Section 121 treatment. He gets to use her use of the property. My opinion is if the subdivisioning of the property happenes more than 3 years before the sale they would lose 121 on the land no longer on the same deed as the house. Just thought I would mention it but it sounds like only a short time will transpire between subdividing and selling.

[joanmcq]

How does he get to use her use of the property, if it was not his principal residence for two of the last 5 years? He is owner, but moved out in November 2004. Also, the house and land is all one deed. The actual subdivision will not happen until after the sale.

[Maribeth]

"Solely for purposes of the exclusion that applies to gain from the sale or exchange of a principal residence, an individual is treated as using property as the individual's principal residence during any period of ownership while the individual's spouse or former spouse is granted use of the property under a divorce or separation instrument (as defined in Code Section 71(b)(2)."

The quote is from a seminar manual prepared by Wilen & Associates, a tax/CPE firm in Vancouver, WA. The instructor of the seminar is in the exact same situation: her ex-husband continues to live in their home and when he sells the home, she will be able to take the §121 exclusion on her half.

Maribeth

[jimmcg]

Per S 121(d), special rules section, an individual is considered to have used a home as a primary residence during any period when the individual's former spouse is allowed to live in it and uses it as a primary residence under a court decreed divorce or separation agreeement.

[joanmcq]

Ex will be happy!