My husband and I purchase a primary residence house in September 2020. He moved out in September 2021 and our divorce will be finalized in October 2022.
Only his name is on the mortgage and the deed has my name and his name. In the divorce settlement, we agreed on the followings.
1. Keep the current mortgage term (only his name on the mortgage) for 10 years and I need to sell the house or refinance within 10 years.
2. All sales proceeds will go to me but I will be responsible for mortgage payments and all related expenses
3. His name and my name are on the deed (50% ownership each)
Selling the house after divorce (I want to know how much I will owe capital gain tax)
1. He did not live in the house for two years, and he will not pass the eligibility test (needs to live for two years to avoid capital gain tax). However, I also see there are exceptions and I may be able to avoid capital gain tax ( https://www.irs.gov/publications/p523). Since his mortgage company does not allow us to take off his name from the deed until we pay off his mortgage, I am not sure if we will qualify for an exclusion of capital gain. In other words, his name will remain on the deed until the house is sold. He will not "transfer" the house to me. My understanding is if our divorce settlement states "all sales proceed to go to wife", we do not need to think about his eligibility. Is that correct? Our equity will be about $100,000. Is there any way to avoid capital gain tax?
2. I heard we are going to receive 1099-S after we sell the house. If both of our names remain on the deed, I assume he will also receive 1099-S. Does he have to report on a tax return or only I report on a tax return?
3. Does IRS have an issue with me collecting all capital gain although both of our names are on the deed?
4. Is there any other tax issues regarding the sales of a house after the divorce?
Thank you
