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e6156a230620
New Member

Do I pay gratuity taxes on equity earned from a divorce house? If do how much? My ex-wife sold the house as part of the divorce agreement and I got half the equity.

What I have found hasn't been very specific and the best I could gather was it could be anywhere from 0-15%. Is there anyway for me to find out a more exact number so I can set that money aside?
4 Replies
Mike9241
Level 15

Do I pay gratuity taxes on equity earned from a divorce house? If do how much? My ex-wife sold the house as part of the divorce agreement and I got half the equity.

where did you see the term gratuity taxes?  A gratuity tax is a levy on a gratuity charge. For example, many businesses automatically charge a service fee based on the meal's value. A gratuity tax would be a sales tax on that gratuity.

 

best to discuss this with your divorce attorney since there are various ways to structure a divorce agreement. you may have a tax-free property settlement or you may be responsible for reporting 1/2 of the gain for tax purposes. if you have a taxable gain then you may be eligible for the home sale exclusion. to be eligible the home must be your principal residence for any 730 days in a 5-year period ending on the date before the sale. the exclusion is $250,000. 

this exclusion can only be used by you only once every 2 years. 

since this sale is a result of a divorce a reduced exclusion would be available if you don't meet the 730-day test or you used the exclusion within two years of this sale. 

    

 

 

 

SweetieJean
Level 15

Do I pay gratuity taxes on equity earned from a divorce house? If do how much? My ex-wife sold the house as part of the divorce agreement and I got half the equity.

Gratuity tax is a term used by residents of the country of India.  Are you asking about US taxes?

Hal_Al
Level 15

Do I pay gratuity taxes on equity earned from a divorce house? If do how much? My ex-wife sold the house as part of the divorce agreement and I got half the equity.

As others have said, if this was the sale of your primary residence, and you meet the two year rule, there is no income tax on the capital gain. You do not even report it on your tax return, unless you got a form 1099-S.  Selling due to divorce is an exception  to the 2 year rule. You are allowed a reduced maximum exclusion.  

 

For an estimate, Try this tool https://turbotax.intuit.com/tax-tools/calculators/taxcaster/?s=1. Enter your regular income first to see the regular tax. Then add the sale to see the effect.
Enter the difference between the sale price and what you paid for it originally as a long term capital gain (LTCG). Depending on how much total income you have LTCG are partially taxed at 0%, 15%, 20% and/or 23.8%. 

Opus 17
Level 15

Do I pay gratuity taxes on equity earned from a divorce house? If do how much? My ex-wife sold the house as part of the divorce agreement and I got half the equity.

For US tax law, you may owe capital gains tax when you sell property for more than you paid.

 

In the case of a personal home, you can exclude (not count as income) up to $250,000 of capital gains when you sell your personal home, as long as you used it as your main home for at least 2 of the past 5 years and owned it at least 2 years.  In the case of divorce, the spouse who moves out of the home still qualifies for the exclusion as long as the other spouse stayed in the home and also qualifies for the exclusion.  However, there are special rules if the home was ever used as a rental or for business (like a home office).

 

First, we need to know what the capital gain actually was.  Thats the difference between the selling price and the adjusted cost basis.  The adjusted cost basis is the purchase price, plus certain closing costs, plus the cost of any permanent improvements (but not repairs or maintenance). See IRS publication 523.  https://www.irs.gov/pub/irs-pdf/p523.pdf  Capital gains is not related to the actual sales proceeds.  For example, suppose the home was bought for $100,000, and sold for $200,000.  But the proceeds were only $50,000 because a few years, ago, you refinanced for $150,000 and used the cash for other purposes.  Your gain is $100,000 because that's the difference between purchase and selling price.  You only got half the gain when you sold the home because you cashed out the other half of the gain when you refinanced.

 

Second, we need to know if the home was ever used as a home office or a rental.

 

Third, we need to know if your spouse lived in the home for at least 2 year (730 days) out of the past 5 years.  The days do not have to be consecutive.

 

If you want to see an accountant for advice, they will need to know the answers to those questions.

 

If we assume the home was never used in business, and your spouse does meet the use test, then you can exclude (not count as taxable income) the first $250,000 of your capital gains.  If your gains are larger than that, they will be taxed at 15%, or 20% if your total income including the gain is more than about $450,000.  You will also pay state income tax on your gains, state tax rates vary from 3%-13% depending on the state and your income.

 

Lastly, note that if your gain is taxable, and you moved out of the state where the home is located, you may have to file a non-resident return for that state, because the sale of a home is considered in-state income.  For example, suppose the home is located in California but you have moved to Arizona, and the total gain was $600,000.   Your half is $300,000, which means $50,000 is taxable.  You will have to report that as CA income on a CA non-resident tax return.  The income is also included on your home state tax return because you pay tax on all your  world-wide income to your home state. But your home state will give you an offsetting credit for taxes paid in another state on the same dollars. 

 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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