16 Oct What happens with taxes when this married couple sells their home?

Q. My brother and his wife have been married for 40 years. About 10 years ago, their house, which had them both listed as owners, was “transferred“ to my brother’s wife only as the owner. If they sell and move out of New Jersey, can they take the $500,000 capital gains exclusion as a married couple or only $250,000 because my sister-in-law is the sole owner?
— Trying to help

A. It’s a great question.

Let’s start with a refresher.

In order to qualify for the home sale exclusion, you first need to meet two tests, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Gillette.

Per the IRS, this is called a Section 121 exclusion. You have to meet both an ownership test and a use test.

“You’re eligible for the exclusion if you have owned and used the home as your main home for a period aggregating at least two years out of the five years prior to its date of sale,” it says.

The exclusion is $250,000 for individuals and $500,000 for married couples filing jointly.

“Based on the information provided as long as they are filing a joint tax return they would be entitled to the $500,000 capital gain exclusion since they meet the ownership and use tests,” Maye said. “The titling of the home in only one spouse’s name does not lessen their exclusion.”

The State of New Jersey follows the IRS rules and they would also be entitled to the same exclusion for the state.

“One other important point is that generally you’re not eligible for exclusion if you have excluded gain from the sale of another home during the two-year period prior to the sale of your home,” he said.

To get more information, see IRS Topic 701, Sale of Your Home.

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This story was originally published on Oct. 16, 2020.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.