Hello. My spouse and I are filing separate and received two 1099-S at closing splitting the gross proceeds. I meet the exclusion requirements and she doesn’t. When inputing this on tax returns, do we also split the selling price, original purchase price, and other costs (commissions, improvements)?
Yes, you will split the selling price, original purchase price, improvements and other sales expenses between you, for the accurate reflection of tax for each of you. If your spouse does not meet the exclusion rules this will provide the correct gain. I have included the rules for your situation below.
Separated or divorced taxpayers. IRS Publication 523
If you were separated or divorced prior to the sale of the home, you can treat the home as your residence if:
You are a sole or joint owner, and
Your spouse or former spouse is allowed to live in the home under a divorce or separation agreement and uses the home as his or her main home.
If your home was transferred to you by a spouse or ex-spouse (whether in connection with a divorce or not), you can count any time when your spouse owned the home as time when you owned it. However, you must meet the residence requirement on your own. If you owned your home prior to your marriage and after your divorce or separation, and your spouse or former spouse is not allowed to live in the home under a divorce or separation agreement, you count any time that you owned the home solely or jointly with your spouse as time when you owned it, and you must meet the residence requirement on your own.