Do Not Forget About the Capital Gains Tax During Your High Asset Divorce

 Posted on April 28, 2019 in High Asset Divorce

Although dissolving a marriage always has the potential to be a complicated process, high asset divorces tend to be particularly difficult to resolve. This is largely due to the fact that the property division portion of high asset divorces is often extremely complex, as couples are required to take into account the significant tax implications of any settlement agreements. For instance, some of the most notable tax liabilities for which many high net worth couples should, but often fail to account for are capital gains assessed on the sale of the family home.

An experienced high asset divorce attorney can be instrumental in helping divorcing couples identify and limit exposure to potential tax liabilities, so if you and your spouse have decided to file for divorce, it is critical to contact an experienced high asset divorce lawyer who can ensure that your financial interests are protected.

What Is the Capital Gains Tax Exemption?

One of the most important tax breaks for married couples is the capital gains tax exemption. The capital gains tax is imposed on any sales of capital investments, such as real estate. For many couples, this means that they must pay a capital gains tax when selling the family home. Fortunately, single homeowners who decide to sell their residences can exclude up to a $250,000 gain. The benefit for married couples is even higher, as couples who jointly own a home can take advantage of a capital gains tax exemption that allows them to avoid paying a tax on profits totaling $500,000.

Accounting for the Capital Gains Tax

Many married couples who decide to get divorced choose to sell the family home, which can have significant tax implications, as the $500,000 exemption only applies to married taxpayers. Fortunately, transfers of property between divorcing spouses are generally considered to be nontaxable. Furthermore, even if the parties sell the house, each party can still exclude the first $250,000 in profit from their taxable income.

Alternatively, divorcing spouses could agree that one will buy out the other’s interest in the house. In these cases, the selling spouse will not need to worry about the capital gains tax, as the sale is considered part of the divorce. If, however, the party who took full ownership of the house decides to sell at a later date, he or she will only be able to exclude $250,000 under the capital gains exemption.

Finally, couples who decide to continue co-owning a home even after divorce can include special language in their divorce paperwork, in which it is stipulated that the spouse who moves out of the home will receive credit for his or her former partner’s continued use of the property, making it possible for that party to qualify for the $250,000 exemption upon the sale of the home. Otherwise, a spouse who continued to share ownership of the home, but chose not to live there would risk losing the $250,000 exemption upon the selling of the home.

Call Today for an Initial Consultation

To speak with an experienced Leander high asset divorce lawyer about the legal and financial consequences of ending your marriage, please call Powers and Kerr, PLLC at 512-610-6199 today.

Source:

https://www.marketwatch.com/story/when-the-irs-overlooks-a-couples-divorce-2013-06-18