My thanks to all who replied - these insights have been very helpful.
So just to be sure, I’d like to paraphrase/summarize what I believe is being said. Please correct me where I’m not quite understanding:
Divorce timing and tax filing status
— staying married and using MFJ means we share financial responsibilities for each other
— staying married but using married-filing-singly (MFS) means higher tax rates and fewer credits/deductions
— we can avoid both the MFJ and MFS concerns by simply filing as single persons
— wrt total tax liability, two us each filing as single persons is not significantly different than using MFJ
— if we divorce at any time during 2025, we must file as single persons for that tax year
Our 2025 returns
— the cap gains exclusion ends up the same: we each get a $250K exclusion
— we can split the total cost basis equally along with the cost of sale
— we each get a 1099-S as documentation for sale proceeds (and, I’d imagine, costs involved in the sale)
— on the 1099-S, the gross proceeds and sale costs are split equally
Head of Household filing status
— depending on what our 18-yo son chooses to do (college out of state? live with Mom or Dad? etc), the HOH filing status is on the table
Scenario of choice
Given all of the above, here’s the plan (and pls correct me where I’m misunderstanding anything):
(1) we should finalize the divorce whenever that makes sense, since it doesn’t affect the financial outcomes:
(2) finalizing the divorce sooner rather than later makes the most sense since that gives my (soon-to-be-ex-)spouse enough time to establish things for an acceptable DTI, so as to qualify for the home loan she’ll need in summer 2025:
- alimony will be established and legally notarized, and thus will be recognized by a lender as income
- she’ll have multiple months with a track record of income and expenses
(3) we sell the home as planned in summer 2025, as two single people living together plus our 18-yo son. There will be no custody issues since he will have reached age of consent.
Again, my thanks.
