| | Home sales, taxes, and divorce
My husband and I bought an abandoned house 4 years ago that we planned to gut-rehab over a 3-year period and move into. Soon after, however, we began to have marital problems so we never got very far with the project. We probably put in $100-$150K of improvements. We are now getting a divorce. We want to sell the house and use the proceeds to buy a house for me and the kids. My husband will stay in our longtime home that we never moved out of. Here is my question: Since the gut rehab was intended to be our primary residence but was never inhabited due to our marital problems, can we roll it over into the purchase of the new house that will become my primary residence in the divorce? Or do we have to pay capital gains on it? Because we bought it in a bank fire sale, we expect the profit to exceed the value of our improvements.
House #1 = primary residence past 15 years...husband will keep
House #2 = gut rehab, purchased with intention of making primary residence -- never lived in
House #3 = new home purchase for wife and kids to live in post-divorce (hopefully to be purchased with proceeds from sale of House #2)
Please advise quickly. Thanks so much!