If you own a home in Florida as a married couple, the federal government gives you a $500,000 capital gains tax exemption when you sell the residence. This tax exemption figure is twice the $250,000 allowed for single individuals. It can be crucial to consider the capital gains tax exemption when you’re getting divorced. Otherwise, one of you could be losing the $250,000 benefit.
How a capital gains tax exemption works
Since your house is an asset, it’s subjected to capital gains tax when sold. However, if you’re married, you can use $500,000 from the sale as a discount on your tax bill. For example, if you buy a home for $250,000 and sell it for $750,000 when married, the $500,000 profit could be used as a break on your taxes. Unfortunately, if you get divorced and become a single homeowner, you’ll pay capital gains taxes on $250,000 of the $500,000 profit, which is why it’s essential to consider all of your options when getting divorced and selling your home.
Options to consider when getting divorced and selling your home
When you’re getting a divorce, it’s critical to consider your options before selling your home if you want to get the most out of the $500,000 capital gains tax exemption limit. You must be in line with the rules to get the exemption, which includes the following:
- The home must be your principal residence for at least two of the last five years before you sell it.
- You must own the home for two of the last five years.
- You can only claim the capital gains tax exemption once every two years.
You may need to stay married to meet the two-year criteria to receive the $500,000 exemption when considering getting divorced. Another option is to co-own the home. This choice allows you to use your $250,000 capital gain tax exemptions. However, this scenario may not be helpful if one of you makes considerably less than $250,000 a year.
If you’re getting a divorce and own a home together, examining the consequences of selling is essential. Failure to consider tax issues could result in a significant financial loss.