Selling off the marital home and dividing the proceeds is very often seen by couples, as one of the most convenient and easiest ways of disposing of the marital home. However, there are several tax consequences that may also apply. In order to reduce your tax burden during the sale of a marital home, take precautions.
The Internal Revenue Service allows homeowners to enjoy a certain amount of amount of tax exemption, when they sell off the primary residence. The exemption applies to the capital gains from the sale of the primary residence. Those capital gains exemption benefits could be up to $500,000 in the case of a couple, and $250,000 in the case of an individual.
However, there are certain criteria that you must meet, in order to qualify for the $500,000 exemption as a couple. You must, for example, meet the “own and use” test, by the IRS. You must own the house, and must have lived in it for at least one of the previous five years.
If you do not meet the criteria, then the Internal Revenue Service will only allow you to enjoy exemptions to the maximum that you qualify for separately.
Those two years do not have to be sequential. For instance, you could have lived in the house one year, rented it out the next, and lived there again in the third year. You could still pass the “own and use” test in this manner.
Also, both of you do not have to meet the “own and use” test, in order to qualify for the 500,000 capital gains exemption benefit. If only one of the spouses meets a two-year requirement, he would still pass the test.
To learn more about how to protect your financial interests during the sale of a marital home, speak to a Colorado divorce lawyer.
This article is for informational or entertainment purposes only and as such does not constitute tax, or financial advice. Consult an accountant or a financial professional for all matters related to financial matters.