How to claim the 121 exclusion on a sale of a residence of the property that a former spouse lived in

[lbones]

I have a client that divorced in 2017.  The decree states that the former spouse can live in the home as long she maintains the property (water, repairs, garbage, etc.).  My client continued to pay the mortgage, homeowners insurance  and taxes.

Former spouse moved out of the home and it was sold in May of this year.  My client has remarried.

My understanding is that since the former spouse lived in the home as her principal residence that my client is entitled to the 121 exclusion of $250K but I am unsure as to documentation that ProSeries will look for on the Home Sale Worksheet.

I will include the divorce decree with the taxes when filed/

[BobKamman · Accepted solution]

Just because it's the first time you have seen this doesn't mean it's the first time IRS has seen it.  ProSeries has a series of questions that must be answered on the Home Sale Worksheet, but none of that gets filed with the return.  For the question about whether you or your spouse lived in the home two out of the last five years, just answer Yes.  No one is going to look at the divorce decree, and it doesn't prove that the former spouse lived there anyway.  (I'm not sure what the rule would be, if it had been a rental.)

Has your client been deducting the mortgage, insurance and taxes as alimony?  

[lbones]

Thanks Bob,

I knew that the worksheet was not something that was filed, I just wanted to confirm that no additional items were required for either ProSeries or the IRS.

The client has not been deducting the interest and taxes on the property as it was better for him to take the standard deduction.

[lbones]

Also, did not deduct it as alimony, never occurred to me that it could be.  I will review and then make some amendments.  Again, thanks for the information

[lbones]

Again, thank you for you help and guidance.  I just went back and checked again.  Divorce was finalized after TCGA so I could not deduct the interest, taxes, etc.