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Divorce and Your Home: the Capital Gains Tax

Divorce and Your Home: the Capital Gains Tax

Posted By Meyers Law Group, P.C. || 19-May-2014

The good news is that if you agree to sell your house because of a divorce, you get to avoid the capital gains tax—usually. There are certain circumstances, however, under which your profit would be subject to this tax. The difference lies in the details of what you two agree to do with the marital home in the divorce. Usually speaking, divorcing spouses have three options when it comes to the house:

  • You sell the house and split the profit
  • One spouse buys the other's share in the house
  • You both co-own the home as you wait to sell or through a lengthy buyout process

How Capital Gains Tax Works when Spouses Sell Their Home

After you've taken care of selling expenses, generally whatever profit remains can be taxed. But if you and your spouse spent two of the last five years in that home, you can both keep the first $250,000 of profit income tax-free. In some cases, this timeframe can be extended to two out of the last ten years for military families. (This exclusion does not apply to vacation homes, only to your "primary residence".) So how does this tax exclusion play into a divorce?

  • If you both sell the home: you might still be able to exclude as much as $500,000 of profit from the capital gain tax.
  • If one of you buys out the other: then the capital gains tax does not apply. This is simply a transfer in the divorce. But even if you keep the house and sell it to someone else down the road, you might still be able to claim a $250,000 exemption.
  • If you co-own the marital home: if a spouse co-owns a house they do not live in, they might lose out on the $250,000 exclusion, unless their co-ownership agreement was plainly laid out in the divorce agreement.

Experienced Advice to Handle Your Home in a Divorce

Divorce is obviously a complex process, full not only of legal complications and financial stress, but also of emotional turmoil. What happens to your home is no small part of this difficulty. This represents one of the most contested issues of property division, and child custody and support payments may be looming large in your decision regarding your house. When you and your family's futures are being decided, you need to know that you are working with a talented and passionate legal professional.

At the Meyers Law Group. P.C., our experienced Long Island divorce attorney is also well-versed in matters of real estate. With our firm, a combination of legal and financial insight can help you reach the results that you deserve in your divorce. Learn how you can assert your rights in the divorce settlement when you call us today!