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Tax implications when dividing real estate during a divorce

The process of divorce can be a very emotional time for Texas couples, and one thing that might add stress to those involved is how to deal with real estate properties. This can get even more complicated if the spouses do not know or understand the tax implications related to the different scenarios regarding real estate.

When it comes to marital assets that consist of real estate, couples can make several decisions in regards to their primary residence. There will be different tax implications. Couples might decide to sell the home and divide the proceeds. The percentage of division does not have to be equal and depends on different variables for every couple. However, once the property is sold, the two spouses might have no tax liability if they can prove that the house was their primary residence for 24 of the last 60 months. If the couple files jointly, they might receive up to a $500,000 profit without it being considered a capital gain. If they file single, they might receive up to $250,000 profit each without tax liability. The capital gain exclusion might only be claimed once every two years.

In other cases, one person might buy the other out in order to keep the home. Still another option is for one person to stay in the house and raise the children, after the couple has agreed on a sell date in the future. Finally, couples might opt for sharing the home even after their divorce. All three of these options have tax consequences, some of which might result in one of the spouses losing their capital gains exclusion.

Property division can often be a sticking point in a divorce, especially regarding the marital home. A family law attorney can often be of assistance to a client in pointing out the tax consequences of various scenarios and taking them into account when negotiating a settlement agreement.

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