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Reducing Capital Gains Tax When Selling Marital Home

Posted on in High Asset Divorce

Reducing Capital Gains Tax When Selling Marital HomeThe marital home – or more specifically, the value of the marital home – can be a hotly debated subject when dividing properties in a divorce. Only one spouse can keep the home, and the other spouse will need fair compensation in money or assets. Some spouses instead choose to sell their marital home and split the revenue from the sale. Each spouse can receive a substantial payout from the sale to go towards his or her post-divorce life. However, lucrative sales will incur the capital gains tax. The timing in which divorcing spouses sell their marital home can reduce their tax obligation.

Reasons to Sell

A home is often the most valuable property in a marriage, in both monetary and personal terms. Spouses may have an emotional attachment to the home, especially if they have children. However, selling the home is the most practical option in some divorces:

  • Neither spouse may be willing to give up the necessary assets or pay the buyout in order to keep the home;
  • The cost of paying for and maintaining the home may be unaffordable for one spouse on his or her own; or
  • A larger home may be unnecessary when each party can use the money from its sale to purchase a more appropriately sized home.

Capital Gains Tax and Exemption

Divorcing spouses are likely to sell their home only if they can receive more money from the sale than they originally paid for it. The difference between the final sale value and initial purchase cost is a capital gain. People in the lowest income brackets can avoid the capital gains tax, but others may be taxed as much as 20 percent on their capital gains. The capital gains tax exemption allows people to exclude a portion of their capital gains from taxation:

  • Up to $250,000 for individuals; and
  • Up to $500,000 for couples.

For a divorcing couple, when they sell their home is the difference between the $250,000 and $500,000 exemptions. Even if divorced, they can qualify for the couple’s exemption if they both still own the home and lived in it for two of the last five years.

Deciding When to Sell

The discussion on whether to sell your marital home should start early in the divorce process. If you wait too long, you may no longer qualify for the couple’s capital gains tax exemption. Obtaining sole ownership of the home and selling it later can also cost you more in taxes. A DuPage County divorce attorney with Calabrese Associates, PC, can help you decide what to do with your marital home. To schedule a consultation, call 630-393-3111.


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