Question: My wife and I have been separated for nearly a year and are negotiating our divorce agreement. She will get our jointly-owned home without mortgage as part of the deal. We paid $50,000 for the house in 1972; it’s now worth over $400,000. My wife wants to sell this home, purchase a small condominium, and invest the difference.

I’ll get our vacation home on a nearby lake that we purchased for $200,000 six years ago; it’s now worth $500,000. I’ve been living there since we separated, but in the past we have rented this house and taken depreciation on it. I want to sell this property because I intend to remarry, take the money from the sale of the lake house, pool it with the money my fiancée will get from the sale of her house, and purchase another house on the lake.

Our divorce should be over in the next month, and I intend to remarry by the end of the summer. My lawyer has thrown up his hands because of what he contends are capital gains problems if I move ahead so quickly because the houses can’t be sold that quickly. What is the status of all of our capital gains exclusions, and can we keep from paying taxes?

Answer: While we appreciate your confidence in us by asking a convoluted, complicated legal and tax question that you say your lawyer can’t figure out, we can’t give you legal and tax advice to solve your problems, first because we don’t know all the facts, and second because your questions are so complex that they cannot be treated in the 570 words to which we are limited each week.

That said, effective May 6, 1997, a single individual who owned and used a residence as a “principal residence” for at least two of the five years before the sale may exclude from his or her gross income up to $250,000 of capital gains upon sale. There is no requirement that the individual must be living in the home at the time of sale so long as the ownership and use requirements are met.

The rules for married couples are more complex: If two individuals are married, file joint tax returns, and meet the other requirements, they may exclude up to $500,000 of capital gain when their residence is sold. The requirements are that 1) either spouse satisfies the two-year ownership requirement; 2) both spouses meet the two-year use requirement; 3) neither spouse used the exclusion within two years before the sale.

If only one spouse meets the prerequisite ownership and use requirements, the couple may exclude up to $250,000 of the gain on the sale based on the eligibility of the spouse who meets the requirement.

In both situations, periods of rental or use of the residence for business cannot exceed three of the preceding five years; however, in these circumstances, when depreciation has been taken on prior years’ tax returns, those amounts will be “recaptured” – that is, these sums will be added into income and will reduce the amount of the exclusion.

Avenues appear to be open to you, your wife, and your fiancée that may allow you to take advantage of tax savings, but not within the next six to eight weeks. We suggest that you slow down, get expert tax advice, and decide if you are willing to spend the time to save the money.