@lixiang , agreeing with my colleague @Bsch4477 for his conclusion,
(a) Because she is a joint owner ( presumably 50% ownership), it can be conceptually looked upon as two separate properties, each owned fully by one owner. Thus she fulfills the ownership requirement of one of the two conceptual properties.
(b) Because she has used both "conceptual" properties as her main residence she fulfills the 2 yrs. total ownership.
Therefore under section 121 she meets the 2+2 requirement and therefore at this point in time she can exclude an amount up to US$250,000 from the gain of her portion of the whole property.
(c) Now , and if the owner ( you ) transfer the ownership rights of the second "conceptual property to her, she meets the use requirement right away ( because she has been using the 2nd. conceptual property as her main residence ) , but she needs to own the property for two years ( from the transfer date ) to meet the ownership requirement.
Does this make sense ?
Also note that the transfer of your half of the property to her , being larger than the annual free gift amount, you will need to file a form 709 to recognize the gift against your own lifetime prepaid gift/estate tax credit.
My ref. is IRC section 121 --> 26 U.S. Code § 121 - Exclusion of gain from sale of principal residence | U.S. Code | US Law | LII /...
Is there more one of us can do for you ?
