@Anonymous_
It may also be relevant that the taxpayer has been on the deed all along, so at most, a half-ownership share was transferred in 2023 and not the whole thing.
@dillingerwa , was full ownership transferred to you and did you pay your ex (buy them out)? Or was full ownership transferred with no payment (your ex was simply kicked out for failing to maintain the property)? Or were you granted the right to occupy and sell the house, but your ex is still on the deed and will receive some of the sales proceeds?
It also appears that section 1041 (no gain or loss recognized on transfer between spouses incident to a divorce) is not linked to section 121 (the exclusion for sale of a principal residence). Even in the case where dillingerwa "bought out" her ex, and even if section 1041 is not applicable, then the ex might owe capital gains tax on the buyout, and the buyout would change dillingerwa's basis, but I think dillingerwa would still be allowed to use the capital gains exclusion for sale of a personal home, as long as the sale is completed within 3 years of the transfer.
I certainly wouldn't disagree with a professional review of the facts.
