What are the Tax Consequences of Home Sales After Divorce?
When you and your spouse go through a divorce, many aspects of your life become intertwined and complicated to unravel.
One such aspect is selling your home after divorce, which has inevitable tax consequences.
Decisions often come from a judge’s ruling in a court-litigated divorce, which might not consider both parties’ unique circumstances and priorities. This can lead to a less-than-optimal outcome, including unfavorable tax consequences when selling your home.
Collaborative divorce, on the other hand, allows you and your spouse to work together with professionals to reach an amicable agreement that is more tailored to your specific needs and concerns.
When it comes to selling your home after divorce, there are a few key tax considerations to keep in mind:
In some cases, one spouse might retain ownership of the home and continue to pay the mortgage. It’s crucial to address how both parties divide or allocate mortgage interest deductions.
When transferring property between spouses as part of the divorce settlement, exemptions may be available for property transfer taxes. Collaboratively working out the terms of the property transfer can help you take full advantage of these exemptions.
If you’ve lived in your home for at least two of the last five years, you may be able to exclude up to $250,000 of capital gains from your taxable income, or up to $500,000 if you’re married and file jointly.
However, in the event of a divorce, this exclusion might be limited, so it’s essential to understand the tax implications before selling.
By addressing the tax consequences of selling your home within the collaborative process, you can achieve a more amicable and financially favorable outcome for each of you, making the transition to post-divorce life more manageable.
When you utilize the Los Angeles Consensual Dispute Resolution Family Law Association, you can rest easier because you will know that when your divorce is finalized, each party involved, including your children, will be better prepared to face the future with confidence.
Call us today to learn more about how our members at the LACFLA can help you and your family through the divorce process in a more peaceful and respectful manner.
Note: This information is general in nature and should not be construed as legal/financial/tax/or mental health advice. You should work with your attorney, financial, mental health or tax professional to determine what will work best for your situation.