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Sold House in 2023

Hi there!

 

I have heard about the capital gains tax and buying/selling a house within two years of owning it... 

 

Long story short, my ex-husband and I built our first home and moved in June of 2021. We separated in September of 2022, got divorced and sold our house in March of 2023.

 

I do not plan to buy another home in 2023. If I am subjected to the capital gains tax, what does that look like? Will both my ex-husband and I be subjected to the tax? We split the profit on our home 50/50.

 

  • Does getting divorced effect whether we will be subjected to the capital gains tax?
  • If we are subjected to it, how much can we expect to pay?
    • We split the profit 50/50 and both got a little over $18K. 
  • My ex-husband's name was not on the mortgage, but was on the deed. Will he be subjected to the tax as well?

Any direction you can provide is much appreciated!

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2 Replies

Sold House in 2023

Also, I'm in Northern Kentucky now. Bought/sold the house in Harrison, OH

Terri Lynn
Employee Tax Expert

Sold House in 2023

Good afternoon, Afeucht24! Thank you for joining us!

 

You asked if you will be subjected to the capital gains tax, how much it would be, and whether you both will need to pay  tax on your share of the profits.

 

This depends on several factors.  First you must look at whether you actually had a gain on the sale.

You will first need to calculate the total you paid for your home. ISince you had your home built, your starting basis is the cost of construction including,  the cost of materials, equipment, and labor. However, you may not add the cost of your own labor to the property's basis. Add the interest you paid on the construction loans during the construction period, Then calculate your net sales price, by taking the sale price minus any commissions and fees you paid on the sale. 

Next you will, take  your cost basis  and subtract it from your total, net  sales price.  If the result is a positive number, this is the amount of your capital gains.  If negative you do not have any capital gains from your sale of home. You will want to report this on a  sale of home worksheet either way, which in turn will ultimately report this on a Scheule D in your tax return. 

If there is a capital gain, you will then want to see if you qualify for the sale of home exclusion.  In your case, you do not meet the general rules for the sale of home exclusion, which says you and your spouse must have lived in the home for at least 2 of the last 5 years, (for at least 24 months). However, you may still qualify for a partial exclusion of gain. You can meet the requirements for a partial exclusion if the main reason for your home sale was a change in workplace location, a health issue, or an unforeseeable event, You will want to refer to IRS PUB 523, section titled "Does Your Home Qualify for a Partial Exclusion of Gain?"

 

Now concerning capital gains tax rates and the amount of tax either of you will pay, this depends depends on filing status, taxable income and how long the asset was owned before selling. The capital gains tax rate is 0%, 15% or 20% on most assets held for longer than a year.

 

In  terms of who pays and reports the sale of the home and  the capital gains tax and how it affects you both, generally speaking, transfers of property between divorcing spouses are nontaxable. But there are circumstances where the capital gains tax does apply to transfers that are made as part of your divorce, you will want to consult a lawyer regarding that specific matter.

 

For ore information check out these links:

 

Tax Aspects of Selling A Home 

Selling your home 

Sale of Your Home 

IRS PUB 523 

 

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Terri Lynn
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