500k cap gains exclusion for (about to be) married couple

Santa Clara, CA · Member since 2015 · 33 posts · 5 votes

I'm getting married Jan 28th 2017. My Fiancee has been living with me for just over two years, but still did her taxes and had official mail delivered to her old residence (her mom's place). We will plan on filing jointly for 2017 taxes. I am the sole owner on title and the mortgage.

My question is whether or not we'd qualify for the 500k cap gains exclusion for married couples after Jan 28th?

I think yes, but I'm worried about the part where I have to prove that she lived there for the last two years since her taxes were done with a different street address on them. What constitutes proof in the eyes of the IRS?

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Scott Vance

Investor · Fort Bragg, NC · Member since 2016 · 59 posts · 20 votes

@Lem Diaz I whole heartedly agree with @Cameron Skinner . I know as an Enrolled Agent I have looked at several tax situations similiar to what you describe and taken the deduction and thought I would have no problem defending it in an audit. I would suggest you talk to your tax professional to ensure you are staying in bounds and not taking a too aggressive position.

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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
9y
I believe she would also have had to been on title to take advantage of the "married, filing jointly". I'm not sure but my impression was always the gain was excludable "for each person, up to $250k", and she has no gain, let alone lived there for the two years.
@Steven Hamilton II will know.
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Cameron Skinner
Investor · Panama City, FL · Member since 2015 · 378 posts · 183 votes
9y
@Lem Diaz unfortunately this is one of those vague rules where IRS looks at "total facts and circumstances" they usually look at where your registered to vote, receive bills, what you put on public documents etc. They also considered where you keep and maintain your personal belongings. If she truly lived there, I would take deduction and not worry about it, because in the event of an audit you could always get friends and family to verify it was her primary residence. This rule is really designed to catch that doctor or lawyer, trying to claim their vacation home 2 states away as their primary residence, when they sell it for a big gain, not to exclude a legitimate deduction as in your case.
Hope this helps,
Good luck!
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Scott Vance
Investor · Fort Bragg, NC · Member since 2016 · 59 posts · 20 votes
9y
@Lem Diaz I whole heartedly agree with @Cameron Skinner . I know as an Enrolled Agent I have looked at several tax situations similiar to what you describe and taken the deduction and thought I would have no problem defending it in an audit. I would suggest you talk to your tax professional to ensure you are staying in bounds and not taking a too aggressive position.
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Lem Diaz
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Santa Clara, CA · Member since 2015 · 33 posts · 5 votes
9y
@Wayne Brooks thanks for the thoughts. I haven't read anywhere that there is a requirement for the spouse to be on title. I'll have to research that more. Thanks for calling that out...it's a fair point.
Hopefully Steven will be able to shed some light.
Cheers,
Lem
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Dave Toelkes
Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
9y
@Lem Diaz,
There is no requirement for both spouses to be on title to qualify for up to $500K capital gains exclusion available to married homeowners who file a joint tax return. Only one spouse has to be the titled owner, although both must meet the occupancy requirement.
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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
9y
Kind of a gray area....
If MFJ you qualify for it generally.
If she's had mail sent there, has had that be her address on file for bills or employment information, ect- it will help prove it.
Lots of married couples don't have both names on the title. The IRS doesn't often throw a tizzy about it.
Oh- I just caught that she had all her mail sent to her parents. I would add her to some utilities and or title asap. Have her on there for 2017 and then I'd say it's grounds to stand on.
I would consult with your CPA. They'll know the history and your returns better and know the likelihood of a red flag.
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