DIVORCE REAL ESTATE AGENT

Federal tax basics for informed conversations

Divorce, the home sale, and capital gains.

Taxes should be considered before timing or ownership decisions are finalized. The rules can be favorable, but the details matter.

The headline rule

The exclusion may shelter a significant portion of gain.

Under current federal rules, a qualifying individual may be able to exclude up to $250,000 of gain from the sale of a principal residence. Certain married couples filing jointly may qualify for up to $500,000. This applies to gain, not the gross sale price.

Ownership test

Generally, the home must have been owned for at least two of the five years before sale.

Use test

Generally, it must have been used as a principal residence for at least two of those five years.

Prior exclusion

A recent home-sale exclusion can affect eligibility.

Divorce rules

Special rules may apply to ownership transferred incident to divorce and to a former spouse occupying the home under a divorce or separation instrument.

What can change the calculation?

  • Original purchase price and certain acquisition costs
  • Documented capital improvements
  • Depreciation from rental or business use
  • Periods when the property was not a principal residence
  • Ownership transfers between spouses
  • Filing status in the year of sale
  • Whether either spouse previously used an exclusion
  • Closing costs and selling expenses

Questions to ask before signing an agreement

  1. Who meets the ownership and use tests?
  2. Will the sale occur before or after the divorce is final?
  3. Will the parties file jointly or separately for the year of sale?
  4. Has the home been rented, depreciated, or used for business?
  5. Are improvement records available?
  6. How will potential tax liabilities be allocated?
  7. Could delayed occupancy affect future eligibility?

General federal information is based on IRS Topic No. 701 and IRS Publications 523 and 504. Tax law and individual facts change outcomes. Consult a qualified tax professional before acting.

A private first conversation

You do not have to solve every decision today.

Start by understanding the property, the available paths, and the questions to bring to your attorney, accountant, lender, and financial advisor.

Request a confidential consultationComplete the short form and our team will follow up privately. No pressure and no obligation.