When divorce involves a home, deciding whether to sell, keep, or buy out a spouse’s interest can be one of the biggest financial decisions you make.

But the home’s value and equity don’t always tell the whole story. Tax consequences can affect what a real estate decision is actually worth to you, sometimes years later.

Keeping the Marital Home? Look Beyond Its Value

If one spouse keeps the marital home, the transfer itself is generally not taxable when it qualifies as a transfer incident to divorce. However, the person keeping the property generally also receives the existing adjusted tax basis.

For a home that has appreciated significantly, that can matter when the property is eventually sold.

That’s why it’s important to understand not only “What is my home worth?” but also “What could keeping this home mean for me financially in the future?”

4 Tax Issues to Consider During Divorce

• Capital gains: An eligible individual may generally exclude up to $250,000 of gain on the sale of a primary residence, while certain married couples filing jointly may qualify for up to $500,000. Divorce and the timing of a future sale can affect how these rules apply.
• Tax basis: The spouse keeping the property generally retains the existing adjusted basis, which can affect the taxable gain when the home is eventually sold.
• Rental or investment property: Depreciation and potential depreciation recapture can add another layer of complexity when dividing or selling income-producing real estate.
• Future planning: If you’re considering keeping the home, think about more than whether you can afford it today. A future sale, refinance, ongoing expenses, and potential taxes can all affect the long-term financial picture.

Understand Your Options Before You Decide

You don’t need to know whether you’re keeping or selling the house before reaching out.

As a Certified Divorce Real Estate Expert® (CDRE®), I help divorcing homeowners understand their real estate options, determine the fair market value of the home, consider potential sale proceeds, and develop a realistic timeline for moving forward.

When tax questions are involved, a qualified tax professional should be part of the conversation.

The goal is to understand your options before making one of the biggest real estate decisions of your divorce.

Leslie Glazier, CDRE®
@properties Christie’s International Real Estate
Chicago & North Shore

This article is for educational purposes only and is not legal, tax, accounting, financial, or lending advice. Tax laws and individual circumstances vary. Consult your attorney and a qualified tax professional regarding your specific situation.