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Tax Planning for Divorce (Part 7-Home Sales)

Guest Post by John Ellsworth, Esq.

If you and your ex decide to sell your home as part of the divorce, that decision may have capital-gains tax implications. Normally, the law allows you to avoid tax on the first $250,000 of gain on the sale of your primary home if you have owned the home and lived there at least two years out of the last five. Married couples filing jointly can exclude up to $500,000 as long as either one has owned the residence and both used it as a primary home for at least two out of the last five years.

For sales after a divorce, if those two-year ownership-and-use tests are met, you and your ex can each exclude up to $250,000 of gain on your individual returns. And sales after a divorce can qualify for a reduced exclusion if the two-year tests haven’t been met. What happens if you receive the house in the divorce settlement and sell it several years later? Then you can exclude a maximum of $250,000.

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