Selling the family home may be one of the more emotional decisions a divorcing couple makes. It may also be a costly one. People in Pennsylvania and across the country who sell their homes may be required to pay a tax on any gain they make from the sale. However, those who take advantage of the federal income tax exclusion may end up paying a lower penalty on their gain. Couples facing property division because of a divorce may still benefit from this law.
The federal income tax exclusion allows an individual to gain up to $250,000 tax free on the sale of a home. A married couple may exclude $500,000. To benefit from this exclusion, a couple needs to have owned the residence for at least two to five years before selling and have used it as their primary residence for two or more of those five years. The joint exclusion requires that only one spouse needs to have ownership, but both spouses must have considered the house their primary residence.
For a divorcing couple to get the most from the exclusion, they must understand their options. For example, selling the home before the divorce is final may qualify them for the $500,000 exclusion on a joint tax return or $250,000 on a “married filing separately” return. If one ex-spouse remains in the jointly-owned home, including a stipulation in the divorce agreement that the other spouse can live in the home satisfies the “use” stipulation and allows both partners to take the exclusion when they sell the home.
Someone who is facing property division due to a divorce may benefit from discussing the tax exclusion with a family law attorney who will be able to answer any questions. Going through a divorce can be confusing and overwhelming. When people in Pennsylvania understand their options, they may be able to make better decisions during a time of high emotion.
Source: streetwisejournal.com, “Heading for Divorce? The Gains Tax Exclusion May Save You Money“, Jacob Maslow, June 30, 2016