Tax Answers

April 13, 1994

Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through Friday, the filing deadline for federal and state returns.

Q: My wife and I were divorced last year and subsequently sold our home for about $130,000; we owed $90,000, so we gained about $40,000. I have bought a house, and my ex-wife has also bought a house. My house was $110,000; hers was $170,000. Since I bought my home for less than what we sold our previous home for, do I have to report a capital gain?

A: If a married couple divorces and subsequently sells a jointly owned home, each former spouse is entitled to postpone gain on the sale if: (1) he or she builds or purchases a replacement home two years before or after the sale of the old home; and (2) the cost of the replacement home is at least equal to his or her share of the old home. Therefore, if you jointly owned the old home, you and your former wife must spend at least half of the old home's sales price on a new home in order for each of you to postpone recognizing any gain from the sale. Both of you should report half the old home's selling price on Form 2119.

The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.

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