Marry Sell a House and Divorce

[arigel]

What is the name of your state? CA

Any complications for getting married, then sell a house, then
divorce, all within one year, in terms of tax?

 

[LdiJ]

What is the name of your state? CA

Any complications for getting married, then sell a house, then
divorce, all within one year, in terms of tax?

Possibly.

Whether or not you were legally married as of 12/31/04 automatically effects taxes. If you were legally married as of 12/31/04 then you must either file as married filing jointly or married filing separately. Married filing separately can have negative tax consequences. However, if you can meet the "test" to be considered unmarried for tax purposes that can be overcome.

As far as the house is concerned...whether or not you were married would come into play regarding the amount of gain obtained from the sale (if there was less than 250,000 of gain its not a factor).

If you owned the home for less than two years then that can also effect taxes...IF there was any "gain" upon sale...which wouldn't be likely in most cases where the home was owned for less than two years....normally the selling costs would wipe out any gain.

Naturally if any children are involved there are tax issues there as well.

 

[arigel]

Given the following assumption:

- A married couple live in a house for the past years (>2yrs). One person own the house. So they are qualified for deduct maximum tax gain ($500K) as a couple. (The law says only one of the them need to own the house, no need to co-own)

- They sell the house with a $400K gain in, say, May.

- They *then* file a divorce and the divorce is finalized in Nov.

- By 12/31 both of them are single again.

when file tax, they will file as single, and can they each take $250K tax gain when filing capital gain?

 

[LdiJ]

Given the following assumption:

- A married couple live in a house for the past years (>2yrs). One person own the house. So they are qualified for deduct maximum tax gain ($500K) as a couple. (The law says only one of the them need to own the house, no need to co-own)

- They sell the house with a $400K gain in, say, May.

- They *then* file a divorce and the divorce is finalized in Nov.

- By 12/31 both of them are single again.

when file tax, they will file as single, and can they each take $250K tax gain when filing capital gain?

Ok....If you shared equally in the proceeds from the house sale....you each got 200,000 GAIN (please make sure that you understand GAIN..gain isn't the money you recieved...gain is the profit you made on the investment)..then you each would be able to exclude that 200,000 from your taxes. You would not report the home sale at all.

Example of gain:

Purchase price of house: 750,000
Improvements to house: 50,000
Total basis: 800,000

Selling price of house: 1,200,000
Selling costs: 125,000
Net amount realized: 1,075,000
Less basis: -800,000

Gain: 275,000

HOWEVER...if only one person owned the house, and only that person got the proceeds from the house...then that person has a problem. That person was single as of 12/31/04. That person has the entire proceeds reported in their name and actually RECIEVED the entire proceeds. Therefore that person is only entitled to a maximum exclusion of 250,000. That person would have to report the home sale on their return and pay capital gains on 150,000.

 

[arigel]

difference?

thanks for the reply. are you saying divorce before 12/31 and divorce
the following year, say 1/1, has a huge difference?

 

[arigel]

msa

and if the divorce MSA says 200K from the house (wether sell or not)
goes to the party who don;t own the house as a divorce settlement,
can the one who own the house deduct that amount?
thanks.