Divorce & Capital Gains on Real Property

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Real Estate Agent with Samson Properties 0225 093857

Divorce & Capital Gains on Real Property

 

Property values have skyrocketed over the last couple of years in the Gainesville, VA housing market - leaving Uncle Sam to be the fly in the ointment!

 

First and foremost, disclaimer: I am not an accountant and this shall not be construed as tax advice.

 

I had a recent divorce case where the wife was blind sited by the capital gains hit. She faced a $62,000 hit when she agreed to take the couples rental property in the divorce - a condo they bought when they first married.

 

In the divorce the husband keep the big house and she got the condo. She planned to sell the condo and use the equity to buy a house closer to the kids. That's when she got hit with reality! What she didn't know when she agreed to take the condo and sell it later was that she would be solely on the hook for the capital gains, which was a rude surprise!

 

Captial Gains

The increase in Gainesville, Virginia home values has increased the probablity of divorcing spouses getting hit with capital gains. What to keep in mind.

 

1- Married filing jointly, you have a $500,000 exclusion. With rising home prices you could face some capital gains.

2-Should you be awarded the house and decide to sell it later your exclusion gets cut in half to $250,000. Leaving you solely with a large capital gains hit. That hit could have been eliminated or mitigated if the property had been sold when they could take the half million exclusion.

3. Rental or non occupied property if not a 1031 exchange could be hit with large gains that may include re-caputure of depreciation.

4. 1031 Exchanges have very specific rules and guidelines when listing. It can become very complex in a divorce. I would suggest you do a bit of homework before attempting to sell. It would be best to enlist the help of a 1031 exchange company early in the proccess.

1031 exchange are not for personal residence. Only investment and business properties qualify.

 

When dividing assests in a divorce be sure you have all the facts. Keeping the house might feel like the right thing to do at the that time but what will you be faces with down the road? Get the help from professionals. Tax Advisors and Certified Real Estate Experts can give you the facts.

 

Another good resource is the IRS’s publication titled Selling Your Home, and there are some specific sections that discuss when capital gains is incident to divorce: IRS Publication 523.

 

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Susan Jacobs is a CDRE- Certified Divorce Real Estate Expert. She works as a neutral third party in Family Law cases regarding real property and secured debt. She can be reached at 703-347-4418 Susan@SusanOJacobs.com or visit www.NOVACDRE.com

 

 

Comments (1)

Trish Cole
Veterans United Home Loans of Puget Sound - Puyallup, WA

Good information to remind clients.  To consult the experts, not just and attorney, but a Tax specialist in these circumstances, and to make usre liabilities are spelled out in detail on the divorce decree.

Jun 02, 2021 07:13 AM