Is dividing the house in a divorce is a taxable event? Typically, transfers of property because of a divorce are non-taxable. This means that the transfer of the house from one spouse to another, where one keeps the house and the other receives a specific amount of money, would not incur immediate tax consequences.
However, when it comes to accessing the equity in the house, things can become more complex. Usually, to receive money from the home’s equity, a refinance needs to occur. This process doesn’t typically trigger tax implications, but it may result in interest payments if money is being pulled out of the house.
Alternatively, if there is an existing home equity line of credit, it can potentially be used to access the equity without the need for a refinance. Another option would be to divide other assets in a way that allows for an equal division of the equity in the house.
What are the tax consequences when selling the house?
In general, if a married couple files a joint return, they can exclude up to half a million dollars of gain on the sale. For example, if they bought a house for $500,000 and sold it for $750,000, there would be no tax on the sale. However, if the gain exceeds $500,000, the excess may be subject to income tax.
It’s important to note that if the couple has separate property reimbursements, the tax liability would likely be a community responsibility and paid from community funds.
For single filers, the exclusion amount is $250,000. This means that if an individual sells the house after a divorce and files as a single taxpayer, they can exclude up to $250,000 of gain from the sale.
Understanding the tax implications of home equity and the sale of the house is crucial when going through a divorce. It’s recommended to consult with a tax professional to provide specific guidance based on your unique situation. By being well-informed, you can navigate this aspect of divorce more confidently and make informed decisions regarding your home equity.
Heberger and Company has been providing accounting services for Fresno, California, and the surrounding area. We are available for financial services including collaborative divorce, litigation support, business valuation and tax and compliance services. Call us at 559-227-9772. Our office located at 5090 North Fruit Ave. Suite 102 Fresno, CA. 93711
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