Selling your home before, after, during, or because of divorce creates some substantial financial concerns that you should be aware of. For example, it’s likely that your current mortgage is based on the income of both you and your ex-spouse. When that salary is halved or reduced, maintaining house payments, property taxes, homeowner’s insurance, and general household maintenance can be too much for one spouse to handle financially.
Another aspect that is critical to consider is the ramifications of the capital gains tax. Currently, the capital gains tax law states that those who are married and sold their home can exclude up to $500,000 in profit. For those who are single, the exclusion amount drops to $250,000. Eligibility qualifications require that you have lived in your home for two of the last five years, and it must be your personal residence, meaning it would not apply to investment properties.
What this means is that there is a massive financial incentive for you and your ex-spouse to work together to sell the home while you are still married legally, so that up to $500,000 in profit can be excluded from your taxes.
Such a large amount of profit from the sale of your home may not apply to many people, but if you’ve owned your property for a long time and it has significant equity, planning ahead and working with your ex-spouse in the sale of the home can provide significant tax savings.
Best of luck with your home sale and please keep us in mind if you need real estate professionals who are experienced with divorce situations. We’d love the opportunity to help you!