Hi everyone,
So I got divorced in September 2023 and just sold my house for $645K. The divorce decree splits everything 50/50. Since I sold the house after the divorce, do I need to pay capital gains tax on anything above $250K? What about my ex? If I have to pay tax on $395K, that really hurts… especially since, after agent fees and splitting with my ex, I’m left with about $84K.
Any advice?
If your profit is $230K, you’re safe under the $250K exclusion, so no tax. Capital gains only apply to anything above what you originally paid for the house. Excise tax and commissions, though, are on the full sale price if that applies in your area.
Sal said:
@Peyton
Phew… I thought I’d have to pay capital gains on $395K! Huge relief…
Isn’t there an exclusion for a primary residence? Pretty sure there is.
Sal said:
@Peyton
Phew… I thought I’d have to pay capital gains on $395K! Huge relief…
Isn’t there an exclusion for a primary residence? Pretty sure there is.
Yeah, that’s the $250K they’re talking about. Basically, if the sales price minus what you bought it for and fees gives a gain of $230K, then with the exclusion, you don’t owe anything.
Which state are you in, was your ex on the deed too, and what did you buy it for originally? When exactly did you sell?
Tobin said:
Which state are you in, was your ex on the deed too, and what did you buy it for originally? When exactly did you sell?
Bought it for $495K back in 2020. Yep, my ex is on the deed. Sold it today, and I’m in Minnesota.
@Sal
Looks like your gain would be $645K minus $495K, which is $150K. With a $250K exclusion, you’re all good. No tax owed, though you’ll still need to report it.
@Sal
As the others mentioned, you only pay tax on the gain, not the sale price, so you should be in the clear if you qualify for the primary residence exclusion.
Also, if your ex qualifies too, you both can get a $250K exclusion each (totaling $500K).
For anyone curious, in some states, you might get an adjusted cost basis if you buy out your ex’s equity during the divorce. That’s what I did, and it’s mentioned in my divorce paperwork.
You left out the key info. How much did you originally pay for it?
With a 50/50 divorce decree, the gain is based on sales price minus what you paid for it, plus closing costs and other fees. You’re probably well under the $250K limit per person.
If you’re both on the deed and qualify, each of you should get a $250K exemption, so together, it’s up to $500K exempted.
Usually, you need to live in the house for two of the past five years to get the $250K exclusion, though there are a few exceptions.
Zenith said:
Usually, you need to live in the house for two of the past five years to get the $250K exclusion, though there are a few exceptions.
It’s actually two out of five.
Honestly, might be better to ask the IRS directly instead of forum folks.
Keaton said:
Honestly, might be better to ask the IRS directly instead of forum folks.
Haha, imagine waiting hours on hold just to be told to read Pub 523!
I’m pretty sure you’re covered under the full exclusion.
Briar said:
I’m pretty sure you’re covered under the full exclusion.
Thank you! I don’t know a lot about real estate. I’m just glad it looks like no capital gains tax for me.
Briar said:
I’m pretty sure you’re covered under the full exclusion.
Thank you! I don’t know a lot about real estate. I’m just glad it looks like no capital gains tax for me.
It probably comes down to the divorce agreement. Was their name on the deed? Either way, it sounds logical… you shouldn’t owe tax on money you didn’t fully get. Take a breather!