There is no longer a $125,000 senior tax exclusion of the sale of a house. Instead, there is an exclusion of up to $250,000 for the sale of a person’s principal residence. To be the principal residence, the person has to have lived there for 2 or the last 5 years, and the person must have owned the property for 2 of the last 5 years. It sounds like the owner has lived there long enough, but the owner only owned a portion of the house for the length of time needed.
Therefore, I believe she can only exclude the portion of any gain on the sale equal to her share of the ownership. For example, if there are two children listed on the deed with her, she would own 1/3 and would only be able to exclude 1/3 of the gain.
If this could amount to a large gain, I suggest you hire a CPA to work out how best to do this.
