Some clients marry into tax trouble – and then have no clue how to get out. Others are on the cusp of a separation or divorce and want the uncoupling (at least in the eyes of tax authorities) to start ASAP. Few clients who need the IRS tool called “innocent spouse relief” to unshackle themselves from a spouse’s tax mess (either one that spouse brought to the marriage or one they racked up later) seem to know about it. Here’s what to tell such a client about what this relief does and does not cover and what your client will have to prove before they can qualify – as well as how difficult this relief can be to get.
IRC Section 121 Exclusion: Nuances That Make a Big Difference
Joshua Youngblood
With the sale of a client’s primary residence, many tax professionals are familiar with the Section 121 exclusion, which allows taxpayers to exclude up to $500,000 ($250,000 for single – $500,000 for married filing jointly) on capital gains for the sale. Often, the only criteria mentioned is that the taxpayer must have owned and occupied the home for two of the most recent five years. However, this barely scratches the surface of Section 121; there’s much more money-saving potential in this portion of the tax code.
