Capital gains, recaptured depreciation, and carry forward tax losses are a few tax overlooked areas that are certainly not on couples’ radar when they start considering divorce. Often times, they get zeroed in on one single issue and neglect to even think about tax consequences of divorce. This can cost them big time! And that’s why I am here, to help them or just him/her see the full financial impact and consider things they don’t even remotely think about when the scary D word is dropped.
A quick tip when negotiating what to do with real estate.
An intact family is entitled to $500,000 capital gains tax exclusion when they sell the residence so no tax would be due. The IRS allows this exclusions for one sale every two years. If divorcing spouses both remain on title to the property, but husband temporarily moves out, the IRS still considers him a resident user. If the marital residence was transferred to the wife, as a part of a divorce settlement, she would be able to use the ownership of the husband for the purpose of meeting the two-year ownership test. Conceivably, if the husband receives their rental property in divorce, he may be able to reduce the capital gains associated with a rental property in the future if he declares it as his new principal place of residence. Per Housing Assistance Tax Act of 2008, the IRS imposes a pro-rated capital gains tax in the time frame the rental property was not the primary residence.
When in doubt, I am happy to consult! 303-625-4071
Denisa Tova MBA, CFP, CDFA provides divorce financial expertise to divorcing individuals. She is a Certified Divorce Financial Analyst, Certified Financial Planner and Mediator.