Putting in IMHO because it’ll probably get moved here anyway.
Case 1: A married couple sells their home. They pass both the ownership and usage tests, so they qualify for the $500k capital gains exclusion. Their realized capital gains are $400k, so they owe no capital gains taxes on the house sale when they file the following year as Married filing Jointly.
Case 2: A married couple in the process of divorcing sells their home. They owned it as “tenants by the entirety” (that may be a MA specific term) meaning that they each owned 50% and would inherit the other 50% if the other died, the normal situation for spouses purchasing a home together. The realized capital gains are $400k. The home sale is done before the divorce is final. Both the sale and divorce are done in the same calendar year. They each have to file as Single for that tax year, because they were divorced before Dec 31 of the calendar year. Each one is entitled to a $250k exclusion, and since they each realized $200k capital gains, neither has to pay cap gains on the sale of the house.
Case 3: A married couple sells their house as part of the divorce. They do not own it 50/50, one person moved into the house the other person owned previous to the marriage. The second person has been paying into the mortgage over the years they were married, and they agreed that gave the 2nd person a 20% ownership stake in the house, so the second person will receive 20% of the proceeds. The cap gains on the sale of the house are $400k. The sale takes place before the divorce is final, but both the sale and the divorce are final in the same calendar year.
So what happens with the cap gains? It seems logical that they’d split both the gains and the exclusion by the same 80/20 split, but my reading seems to indicate that the exclusion has to be $250k to each spouse. That would imply that the 1st spouse would wind up owing cap gains - their portion of the cap gains is 80% * 400k = $320k, subtract out the $250k and they owe cap gains on $70k , which at 15% would be $10,500. The 2nd spouse has only $80k of cap gains, so they owe nothing, but there’s $170k of unused exclusion that they can’t transfer to the 1st spouse. Is that really the way it works?