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Understand Tax Implications and Minimize Your Tax Burden
When you sell your home during divorce, you may be subject to capital gains tax on any profit. However, the IRS provides significant exemptions that can eliminate or reduce this tax burden. Understanding these rules helps you minimize taxes and maximize proceeds from your home sale.
The IRS allows most homeowners to exclude up to $250,000 of capital gains ($500,000 for married couples filing jointly) when selling their primary residence. To qualify, you must:
During divorce, the home sale exclusion rules can be complex. Here's what you need to know:
If you sell the home while still married and file jointly, you can exclude up to $500,000 of capital gains, assuming both spouses meet the ownership and use requirements.
After divorce, each spouse can exclude up to $250,000 of capital gains on their share of the sale, as long as they meet the ownership and use requirements individually.
If one spouse transfers their interest to the other (via buyout or quitclaim deed), this is typically a tax-free transfer under IRS rules. The receiving spouse takes the transferor's basis and holding period.
Capital gains equal the sale price minus your adjusted basis. Your adjusted basis includes:
Capital Gains = Sale Price - Adjusted Basis - Selling Costs
Nevada has no state income tax, which means you only need to consider federal capital gains tax. This is a significant advantage compared to states with income tax. However, you still need to understand federal tax implications.
When you sell during divorce can affect your tax situation:
Strategies to minimize or eliminate capital gains tax:
If you sell while still married and file jointly, you can exclude up to $500,000. Both spouses must meet ownership and use requirements.
After divorce, each spouse can exclude up to $250,000 on their share, assuming they meet requirements individually.
If one spouse keeps the home via buyout, the transfer is typically tax-free. The receiving spouse takes the transferor's basis and can use the exclusion when they eventually sell.
Keep detailed records for tax purposes:
Tax implications of divorce home sales can be complex. Dr. Jan Duffy recommends consulting with a CPA or tax attorney who specializes in divorce to ensure you understand all tax implications and take advantage of available exemptions and strategies.
Be aware of tax deadlines:
Understanding tax implications is essential for making informed decisions about selling your home during divorce. Dr. Jan Duffy helps you understand the basics and coordinates with tax professionals to ensure you minimize your tax burden.
While Dr. Jan Duffy provides real estate expertise, she recommends consulting with a tax professional for specific tax advice. She can coordinate with your CPA or tax attorney to ensure your home sale supports your overall financial strategy.
Schedule a ConsultationDisclaimer:
This information is for educational purposes only and does not constitute tax advice. Tax laws are complex and vary by situation. Always consult with a qualified CPA or tax attorney for advice specific to your circumstances.
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