The election must be attached to the Form 1040 for the year in which the first transfer occurs. Determination of a house as principal residence qualifies gain on the sale of the house and deductions relating to that house for special preferable tax treatment. What is required is that the spouse demonstrate an intent to return to the same house and establish no other principal residence. The terms of agreements and orders of the Court must be considered in order to determine principal residence. Proper planning can provide significant tax savings.
Many opportunities are available only during special windows of opportunity.
Exclusion on Deferral of Gain Properly timed application of IRC Secs. 121 exclusion and the Sec. Double benefits occur by the interplay of Secs. For example, if both parties, age 55 or older have jointly owned and lived in the principal residence for three of the last five years, then the Sec. 1034 deferral or tax-free rollover applies separately to each taxpayer spouse after the divorce, whereas it applies jointly while the taxpayers are married.