Divorce Payoff

[rarevalo]

Hi,

After a lengthy divorce trial to settle on our house, my ex wife decided not to sell the house.  She and her legal team decided that refinancing was the way to go.

I was paid a settlement, divorce payoff, from half the equity of the house.

I've talked to the title company asking for paperwork or documents other than the letter I received with the check.

Where do I report the divorce payoff on my income taxes?  I would appreciate a response so I can complete my taxes.

Thank-you in advance!

[bosso3]

I'm not an expert but I think you need to report this as either a capital gain or loss.

Also, the amounts you would use depend upon whether you live in community property state or not, and if not, whose names were listed as the owners of the property before the sale.  It could also vary depending upon whether or not the house was owned before the marriage and the length of your marriage.  Your divorce decree could also contain information regarding who pays what taxes and how they are distributed between you and your ex.

Capital gains are discussed here  https://www.irs.gov/taxtopics/tc409

A link to the Capital Gains form (Schedule D) is here  

https://www.irs.gov/forms-pubs/about-schedule-d-form-1040

You may want to consult a tax professional in your state.

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[JillS56]

Generally, you don't have to pay taxes on any gain or loss you have from the buyout. That's true even if the house is just one part of the bigger plan to divvy up your assets and debts — for example, if you get the house because you agreed to give your ex-spouse cash or to pay off the debt you both owe.  

A buyout as a result of a divorce settlement is not taxable as this is a result of the division of the assets of the marriage and not a sale.   If the property is sold and you are paid your portion from the sale of the property, then you do report it as a gain or loss.  

@rarevalo

[rarevalo]

Very helpful...Thank-you!

I was only given letter with the check, so I've read all the forms along with Schedule D. I'll be contacting tax professional to make sure I complete correctly.  Thank-you!