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Splitting Up or Splitting the House: Which Is Easier in Divorce and Taxes?

Splitting Up or Splitting the House: Which Is Easier in Divorce and Taxes?

It’s a matter of fact that you don’t have to pay any income taxes on assets transferred as a divorce is processed. However, know this: a house unfortunately will be handed over to one spouse or the other, only not tax-free. Why? Specifically, when capital gains taxes still remain relevant, they apply regardless of a divorce.

As with property law, know this – a married couple won’t have to pay any taxes on a gain of up to a healthy $500K on the particular residence. However, when you get divorced, you’re exempt from half of that amount. This is important to know given the fact that the house may sell for more than $250K, for example, leaving you – and your former spouse – the responsibility to pay the taxes for what’s left in capital gains. That’s a sad fact. However….

There’s a bright side – a silver lining, if you will – to all of this, in that if you prepare well ahead in advance and move out before the divorce is finalized, you may try to seek receiving the proceedings of the house. If you’re successful, you can then claim the house as your primary residence and not have to pay any of those taxes. The bottom line?

Splitting the house is hard. Complicated. Utterly difficult. I’d wager to say that dividing that giant building in half between two bickering people may be a lot harder than the actual bickering and divorce itself. That’s just my opinion, and I’m sticking to it.

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