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!