CCH Federal Taxation Basic Principles
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Colleen purchases her principal residence on January 1, 20x1, and marries Stan that same day. After one year of living together in Colleen’s home, the marriage turns sour and they divorce. On January 1, 20x2, Colleen moves into an apartment, and under the terms of a divorce decree, Stan is allowed to live in the house for an additional year before Colleen can sell it. On January 1, 20x3, Colleen sells the house realizing a $500,000 gain. Despite not occupying the house for a full two years, Colleen can claim a $250,000 exclusion. She is deemed to have occupied the house during the one year her ex-spouse occupied it, thus satisfying the two-out-of-five-year occupancy period requirement.
Sale of Home by Divorced or Separated Taxpayers— Occupancy Requirement
Chapter 11, Exhibit 5b