Free Initial Consultations


Your Divorce and the Gains Tax Exclusion

 Posted on August 29, 2016 in Divorce

divorce tax consequences, Palatine divorce lawyersMany couples who are facing divorce often question what to do with the marital residence, which often is the parties' most valuable asset and an asset that neither spouse may be able to maintain on his or her own. As a result, many individuals in this situation opt to sell the marital home, either during or just after their divorce. A recent online article highlights the potential benefits of the federal gains tax exclusion that divorcing couples can receive if they decide to sell the marital residence. These benefits may allow you and your spouse to receive proceeds from the sale of the home free of federal income taxes, which can give you the money to downsize into a more affordable home.

How the Gains Tax Exclusion Works

If a couple decides to sell their home, they potentially may be able to receive gains from the sale of up to $500,000 without any federal income tax being assessed on those gains. Even if the couple is separated, they may still be eligible for the joint exclusion if they were still legally married at the end of the year in which the home is sold. If the couple is already divorced, however, and the spouse who receives the home through the divorce proceedings wishes to sell it, he or she can still receive tax-free gains of up to $250,000. If the parties still co-own the home and they are newly divorced, they potentially can each have gains of up to $250,000 free of federal income taxes, assuming that they meet the additional eligibility requirements described below.

Nonetheless, there are some qualifications that sellers must meet in order to be eligible for the gains tax exclusion. First, the individual or couple must have owned the property for at least two out of the five years before the date of sale. Additionally, the individual or couple must have used the property as a main residence for at least two of those five years prior to the sale.

Taking Advantage of the Joint Gains Tax Exclusion

Qualifying for the joint gains tax exclusion is obviously preferable, simply because it allows you a much larger amount of gains from the sale that is free from federal income taxes. In order to take advantage of the joint gains tax exclusion when a couple is still legally married, both of the spouses must have used the property as their main residence for at least two years, and at least one spouse must own the home. It also can be helpful to include a provision in the parties' final divorce order that permits the non-resident spouse to continue living in the marital home for a specified period of time, which is sufficient to trigger the joint gains tax exclusion. A couple can claim the joint gains tax exclusion by filing a joint federal income tax return, or by filing a "married filing separate" return, which would permit each spouse to claim up to $250,000 in tax-free gains.

Call an Illinois Divorce Lawyer for Assistance

At The Law Office of Nicholas W. Richardson, P.C., Attorney Richardson is dedicated to helping you through your divorce in any way possible. From the sale of the marital residence to the division of personal property, he is here to ensure that your divorce is resolved in a fair and efficient manner. Nicholas Richardson knows Illinois divorce law and how all aspects of your divorce will affect your life for years to come. Let him assist you through the legalities of your divorce proceedings, while you focus on moving on with your life. Call the office today at 847.873.6741 and schedule a consultation with an experienced Palatine divorce attorney.


Share this post:

Introducing The Law Office of Nicholas W. Richardson

Nicholas W. Richardson is an experienced divorce lawyer and mediator whose comprehensive legal knowledge, commitment to clients and reputation for results bring lasting solutions to your problems.

Back to Top