Short sale of residence by divorcing couple

[MargaretMort]

Not a client but an acquaintance who knows I do taxes. She and her husband are divorcing, is final in 2011. I already told her she would have to file MFS or MFJ for 2010, won't consider MFJ. Neither one could afford to keep the residence they have jointly owned for a number of years so the bank, I suppose, took it back and issued a 1099-S but only in the husband's name and SS. She wants to know if she has to report it on her tax return also.

I have no experience in these matters and I can't seem to find any relevant info so I am turning once again to all you experienced preparers for help. My sincere thanks in advance. MM

[Pacun]

Not a client but an acquaintance who knows I do taxes. She and her husband are divorcing, is final in 2011. I already told her she would have to file MFS or MFJ for 2010, won't consider MFJ. Neither one could afford to keep the residence they have jointly owned for a number of years so the bank, I suppose, took it back and issued a 1099-S but only in the husband's name and SS. She wants to know if she has to report it on her tax return also.

I have no experience in these matters and I can't seem to find any relevant info so I am turning once again to all you experienced preparers for help. My sincere thanks in advance. MM

If they owned and lived in the house for the last 2 years, you report it as a principal residence and the gain will not be taxable.

If there is a loss, just report the proceeds as personal and the loss will be disallowed.

You should report it for record keeping.

[Lion EA]

Definitely report half of it. If soon-to-be-ex hubby reports half in her SSN to IRS, she'll want to have reported her half to match.

[MargaretMort]

Hadn't thought about the fact that it will show a profit. As I said, I haven't dealt with this situation before. Thank you. MM