Can I sell my house to my wife and take the exclusion?

Off the top of my head I don't see why not, but since it definitely "smells" of something up, I'd make sure that everything about the sale was 100% bona fide. For example, she had $700K in cash and new encumbrances to make the purchase.

No. They saw you coming with paragraph (a)(1) of regulation 121-2:

"(a) Dollar limitations--(1) In general. A taxpayer may exclude from gross income up to $250,000 of gain from the sale or exchange of the taxpayer's principal residence. A taxpayer is eligible for only one maximum exclusion per principal residence."

Phil Marti VITA/TCE Volunteer Clarksburg, MD

I certainly am no expert on this subject. But if the wife files separately, would she not be eligible for the exclusion for her own tax returns? I would expect that none of the exclusion could be transferred to the husband's or a joint return.

Bill

If it walks and talks like a scam....

Title 26 Section 1041(a) precludes what you are asking. There is no gain or loss recognized on transfers between spouses. Basically, the transaction is disregarded for tax purposes. Your cost basis gets transferred to your wife if you sell her the home. As there is no gain, there is no exclusion of gain.

Phil - I think there's no chance of this passing audit. Zero.

But - one question - OP made his ownership clear, 100%. I would advise that even if he sold to a stranger, his exclusion is $250K, not $500K as his wife has no ownership how does she get an exclusion? The idea that she could purchase it and her own purchase benefits by creating an exclusion strikes me as absurd.

Joe

Ahhh, that closes that loophole. But what about the following.

I live on a street where the houses are pretty much the same. I bought my house for $200k 23 years ago. The house across the street is for sale with an asking price of $759. Assuming I bought the house across the street, then sold my own house, (each for $700k), I've effectively achieved a step-up in basis. Haven't I??

Does this mean that the house is no longer separate property? If the wife did not contribute to the purchase of the house before she bought it, when did the the house turn into community property? What would happen, if the wife wills it to her relatives and not to any of the husbands relatives? Would that not indicate that the house is truly her property to do with as she pleases?

Bill

1.See my original reply to the OP. Sec. 1041(a) precludes this transaction.

Re the $500K exclusion: On a joint return, you can get the $500K if both spouses meet the usage rule. Only one spouse must meet the ownership rule.

The transaction is disregarded for tax purposes. It is not disregarded for purposes of ownership.

Seems to me that should work. The difference is that you are in a different house.

This query is not related to the subject of this thread. In the future, you should start a new thread with a new subject.

Yes and you start a new 2 year ownership and usage clock for the new home and you are limited to one tax exclusion on your home within a two year period.

Married Persons

If you and your spouse file a joint return for the year of sale and one spouse meets the ownership and use tests, you can exclude up to $250,000 of the gain. (But see Special rules for joint returns, next.) Special rules for joint returns. You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true.

*You are married and file a joint return for the year. *Either you or your spouse meets the ownership test. *Both you and your spouse meet the use test. *During the 2-year period ending on the date of the sale, neither you nor your spouse excluded gain from the sale of another home.

You are right, Alan. Joe

This is not just a community property state issue. It can happen in a separate property state as well. The court can rule that the home became marital property during the marriage unless there is a document that reserves it as separate property.

purposes:  23 years ago, I purchased a

Title 26 Section 1041(d) states that subsection (a) shall not apply if the spouse (or former spouse) of the individual making the transfer is a nonresident alien. Does that mean this plan might yet work under the right circumstances?

purposes: 23 years ago, I purchased a

The plan as presented had the husband selling his home and taking a $500K exclusion on a joint return. If the wife is a nonresident alien, then a joint return can not be filed. Therefore, if the home is sold to the nonresident alien wife, the maximum exclusion on the husband's married-separate tax return or head-of-household return if qualifed, is $250K. The husband would have to pay tax on $250K capital gain. Then, in order for the wife to claim another exclusion on that same home, the wife would need to meet the 2 year ownership & 2 year use rule. If the wife meets the use rule, the wife becomes a resident alien by passing the substantial presence test. Then, assuming the husband also meets the

2 year usage rule and enough time time elapses to pass the once every 2 year rule for taking the credit, they could sell, file a joint return and get the $500K exclusion assuming that Congress in the interim does not change the law.

At the second sale how does hubbie get around paragraph (a)(1) of regulation 121-2:

"(a) Dollar limitations--(1) In general. A taxpayer may exclude from gross income up to $250,000 of gain from the sale or exchange of the taxpayer's principal residence. A taxpayer is eligible for only one maximum exclusion per principal residence."

I guess one could argue that the human being who claimed the $250K exclusion at the first sale of the same home was not the "taxpayer" who claimed the $500K exclusion at the second sale, but it seems pretty clear to me that the intent is that it's $250K per human.

Phil Marti VIA/TCE Volunteer Clarksburg, MD

You're right. I forgot about that clause. You can only get the exclusion once on the same principal residence. So on the second go-round, only the wife could claim a $250K exclusion whether she files separate or joint.