Are There Tax Implications When Selling The Marital Residence?

By Gerald A. Maggio, Esq.

Divorce mediators Orange County; California Divorce MediatorsUnder current Federal tax law, if you have lived in the same house for two of the last 5 years as your principal residence, individuals are exempt from capital gains taxes of up to $250,000 in taxable profits on the sale of your house, and $500,000 in taxable profits for married couples.

For any profits above these amounts, capital gains taxes are assessed of 20% would be assessed, which married couples would be equally liable for.

There are occasions where one of the spouses involved in a divorce wishes to “bifurcate marital status” while their divorce is pending, meaning that the Court can restore the parties to single persons while the rest of the dissolution case is still pending. For example, one of the spouses may wish to remarry, and they cannot legally do so without first terminating their marital status.

However, the parties must first determine the approximate amount that their residence has appreciated in value since they bought it, because if one spouse decides to keep the marital residence and marital status has previously been determined, that spouse would be considered a single person for purposes of state and Federal tax laws and thereby only be entitled to the $250,000 tax exemption instead of the $500,000 tax exemption. The tax implications are be substantial and should be considered in any settlement negotiations.

You should always consult with your tax professional before making any decisions in your divorce case.

To learn more about the divorce process in California and how mediation can help, please visit our page, “What is Divorce Mediation.”