After a buyout, the selling spouse doesn't need to worry about capital gains tax because the sale was part of the divorce. But if you buy out your spouse, stay in the house, and later sell the house to a third party, capital gains tax will apply to that sale. You may exclude the first $250,000 of gain—as long as you've lived there for two years before selling, or meet one of the IRS exceptions to that rule. For a spouse who continues to own the house but doesn't live in it, there's a risk that the $250,000 exclusion might not apply when the house is sold. To avoid losing the exclusion, it's important to have written documentation of the agreement that called for one spouse to stay in the house and the other to leave but remain a co-owner. If it's clear that the arrangement was pursuant to a divorce settlement or court order, then the nonresident spouse can still take the exclusion on the basis of the resident. Capital gains can be confusing. If you have questions about your basis, whether your gain is over the exclusion amount, or other aspects of capital gains taxes, try looking for the answer in IRS Publication 523, Selling Your Home , or ask your attorney or tax preparer to help you figure it out. Excerpted from Nolo's Essential Guide to Divorce , by Emily Doskow There are other tax benefits available when substantial equity growth has occurred over years of owning a home. These are best discussed with your lawyer or tax professional to ensure you make financially sound decisions about when to sell your home.
THE EMOTIONAL SIDE OF SELLING YOUR HOME
If the marital home has been the hub of happiness and family life, it may turn out to be a constant reminder of what once was
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