Many of our readers know that when you sell your home (principal residence) you are entitled to a $250,000 per person ($500,000 if married filing jointly) exclusion of gain from taxation. However, there are various rules, including that you needed to have lived in that house for at least two of the past five years. There is a special rule for divorced couples called the “Ousted Spouse Rule” that essentially allows that the two years out of five residency is met by a divorced person if his/her fellow divorced spouse meets that rule. This allows someone who has been out of the house for a number of years, and yet has retained his/her ownership interest in that house until it is sold (not an unusual situation), to benefit from the exclusion rule.
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