I'm married filing separately for tax year 2022. However, my spouse and I sold a house. Do we each claim the sale in our taxes, or does only one of us?

[HelenC12]

You can do it either way as long as both of you agree. You can use TurboTax to see the tax implications (if any) of claiming it one way or the other. 

You can file Married Filing Separately and divide everything, including the exclusion in half, which is $250,000 for Married Filing Separately, if you qualify qualify for the exclusion. 

Please see Is the money I made from a home sale taxable? 

[singlebordop]

Thank you. I understand we both have to claim itemized or we both have to claim standard. Standard is looking like it's cheaper so I'm inclined that direction. But just to clarify: even though my name is on the 1098, can she claim the house sale all on her own? In other words, can I NOT claim it, and she claim all of it? 

[GeorgeM777]

Perhaps not.  To follow-up on the prior posts, what was the nature of your ownership in the home with your spouse?  For example, were you joint tenants?  Or were you tenants-in-common?  Also, who is listed as the actual owner of the home?  You mentioned your name is on the Form 1098; however, we need to know whose name is on the title/deed of the home.  

Generally, spouses cannot split proceeds/gain/losses on the sale of a home when they file MFS in order for one spouse (or both) to gain some tax advantage.  

@singlebordop

[singlebordop]

My name is on the 1098. We lived there together before we sold it. It was our primary/only house.

Hopefully this is legal, but we're both taking standard deduction. And she is claiming the sale of the house, not me. It was under $250k profit so maybe all of this was moot.

Thanks.

[Vanessa A]

If the house was in your name, you cannot just give her the profit on the home to claim on her return.  You would need to claim it.  If you both lived there for 2 out of the last 5 years, then the $250K exclusion would apply to you each individually or $500K if you filed jointly. 

[Opus 17]

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@singlebordop wrote:

My name is on the 1098. We lived there together before we sold it. It was our primary/only house.

Hopefully this is legal, but we're both taking standard deduction. And she is claiming the sale of the house, not me. It was under $250k profit so maybe all of this was moot.

Thanks.

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So lets think about the rules.

The 1098 only applies to the mortgage, not the sale of the property.  How was the property titled and in whose name was it?  Also, what state do you live in?

Suppose you recently married, and the home belonged to your spouse before the marriage and the home is titled in the spouse's name only.  Marriage imparts ownership, so if your spouse qualifies for the 2 year/5 year rule on ownership, then you also qualify automatically.  But marriage does not impart residency.  For you to qualify for the exclusion, you must have lived there for 2 years before the sale.  

If you were not on the title, it could be argued that it is permissible for your spouse to report the entire sale.  If the gain (not the proceeds, but the capital gain, which is something different) is less than $250,000 there is no tax owed.  And in fact, if a 1099-S was not issued at the sale, it doesn't even have to be reported.

However, suppose you were on the title, making you a 50% owner.  Or you live in a community property state. You must generally report 50% of the sale (half the cost basis, half the proceeds, and half the capital gain).  If you lived at the home less than 2 years, your half the gain is taxable, and having your spouse report it all could be illegal tax avoidance.  

If you qualify for the 2 year residency rule, then there is no tax advantage or disadvantage to reporting the sale as 100/0, 50/50, or 0/100...it is not taxable to anyone as long as the gain is less than $250,000.  So I don't see why the IRS would care.  But if there is a scenario under which one spouse will owe some tax, you have to be very careful before loading all the gain onto the other spouse to avoid the tax.  And if you live in a community property state, you must report the sale according to community property laws (and the house might or might not be community property depending on the laws and circumstances.)

If you do anything except split it 50/50, the short answer is "it depends."