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Federal Capital Gains Tax Exemptions: How to Determine Your Eligibility- Links & Resources

(Both the video and article offer distinct perspectives and information. Be sure to check out both for a comprehensive understanding. The video provides visual clarity, while the article delves into specific details. Together, they provide valuable insights to help you navigate your situation effectively.)


While Texas does not impose a capital gains tax, it's essential to recognize that federal capital gains still play a role when selling a house during a divorce. Here's what you should take into account:


You will still be subject to federal capital gains tax on the profit from the home sale if you've owned it for more than a year. The IRS calculates the tax rate based on your taxable income. For detailed information on capital gains rates, you can visit the IRS website:


IRS Capital Gains Tax Rates: Topic no. 409, Capital gains and losses https://www.irs.gov/taxtopics/tc409


When dealing with the sale of a house during a divorce, it's essential to consider the implications of capital gains tax. Luckily, there's a good chance you can avoid federal capital gains tax if the property was your primary residence and you meet certain requirements. This exclusion allows you to exclude up to $250,000 of capital gains for single filers and $500,000 for married couples filing jointly. Learn more about the exclusion here: IRS Capital Gains Exclusion at link above.


How capital gains are handled depends on how you and your spouse divide the proceeds from selling the house. Here's where things get a little complex:


  • Selling During Divorce: If you sell the house while finalizing the divorce, capital gains tax applies like any other sale. Each spouse can potentially exclude up to their share of the $250,000/$500,000 exclusion depending on filing status.

  • One Spouse Buyout: If one spouse buys out the other's interest in the house, the selling spouse might be liable for capital gains tax on their portion of the increased value, unless the buyout happened during the divorce proceedings.

  • Co-Owning After Divorce: If you continue to co-own the house after the divorce, the tax implications become more complex. Consulting with a tax advisor is crucial in this situation.


I can't provide further guidance on taxes as it's not my area of expertise. However, this information serves as a good starting point, along with the right resources, to begin understanding how you and your divorcing spouse may be affected.


In all cases, it's strongly advised to consult with a tax advisor specializing in divorce settlements. They can offer valuable insight into the specific tax implications for your situation, considering factors such as the duration of homeownership, filing status post-divorce, and the distribution of profits between spouses.





Amanda Allen, Realtor

GRI-SFC-MRP

(903) 603-0648

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