TAX TIPS (and other stuff)
By Kelly J. Bullis, CPA
2026-April 25th
Divorce can be ugly, emotionally draining, time-consuming and profitable for all the attorneys involved. In the midst of attempting to get through such a trying event, most are not thinking about how to preserve major tax breaks such as the home sale exclusion.
You know about the home sale exclusion? A single person can exclude up to $250,000 of the gain on sale of their personal residence, and married couples can exclude up to $500,000.
To qualify for the home sale exclusion, you must have owned and used the home as your principal residence for at least two years of the five-year period ending on the sale date.
Normally, when there is a divorce, the shared home is sold within that magic 2 of 5-year rule. But occasionally, the divorce allows one spouse to continue to occupy the home as their principal residence and the other spouse, while maintaining half or whole ownership, can no longer claim the home as their personal residence. If the home is eventually sold outside of the 2 of 5-year rule, the non-resident ex-spouse now loses their $250,000 exclusion.
Another scenario is that the non-resident ex-spouse may have sole ownership of the house but must allow the other ex-spouse to occupy it until all children reach age 18 or some other trigger.
Here is how you can take specific steps as the non-resident ex-spouse to still take advantage of the $250,000 exclusion when the home is sold outside of the 2 of 5-year rule.
If you will soon be the non-resident ex-spouse, insist that the divorce papers stipulate that, as a condition of the divorce agreement, your ex can continue to occupy the home for as long as they want, or until the kids reach a certain age, or for a specified number of years, or whatever you two can agree on. Once the magic date is reached, the home can either be put up for sale with the proceeds split according to the divorce agreement, or one ex can buy out the other’s share.
This stipulation in the divorce papers effectively allows you, as the non-resident ex-spouse, to receive “credit” for your ex’s continued use of the property as a principal residence. So, when the home is finally sold, you’ll pass the 2 of 5-year rule use test and thereby qualify for the $250,000 gain exclusion privilege…even though you have not lived in the place for many years.
Have you heard? Psalms 20:4 says, “May he grant you your heart’s desire and fulfill all your plans!”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 775-882-4459. As well as on our website at BullisAndCo.com. You can also find us on LinkedIn and Facebook.
