When my husband and his ex-wife separated in 2002, they refinanced the family home and to raise cash for a downpayment on a second house, where she would live. They have joint custody, so the children spent half the time with him in the former family home and half the time with her in the new house. They jointly paid the mortgages on both houses until this fall, when they sold the former family home and split the proceeds.
She then she purchased his equity in her house, which netted him $79,000. Their initial downpayment was $90,000, and they jointly paid $68,000 in PITI over the course of three years, hence he invested a total of $79,000 in her house. Does he owe any capital gains taxes, given that (a) he only "invested" in this house because his then-spouse could not afford to purchase it on her own; (b) he only "disinvested" so as to separate his finances from those of his former spouse; and (c) the house is not strictly an investment property, because his children have been living there half the time?
Thanks in advance...