do you split the purchase price of your home for tax purposes when sold after divorce?

Question

Bought a home together for 119000.00 sold 10 yrs later for 238000.00 divorced proceeds get split what about purchase price.

Answer 1

That depends upon what your divorce decree says. If if states that you split the proceeds evenly, you take the net cash from the sale (after any costs or mortgages are paid off) and divide it equally between you.

From a tax standpoint there won't be any tax if both of you lived in the home as your principal residence for 2 full years out of the 5 years immediately prior to the sale. If either of you don't meet that test (or have taken the exclusion on another property within 2 years prior to the date of sale) then your share of the gain will be subject to capital gains tax, normally at 15%. Assuming that your adjusted basis and net proceeds are accurate, the total gain is $119k and each of you have $59,500 in gain.

Answer 2

In your case it would not make any difference because your exclusion will reduce your liability to zero any way you choose to file the return. That said, there would be a number of factors to consider if your gain did exceed the exclusion. First would be what if anything the court decree said about the sale. Court orders normally over rule any IRS rule. Second, what was you filing status at the time of the sale. If you were still legally married and filing MFJ you don't have an issue. If that is not the case I would split the cost and the sale price in half and figure your gain from those numbers. Now you could have an issue about living in the home as your primary residence for two of the last five years. One of you may not meet that condition of the exclusion rules if you had been separated for a long period of time. If that were the case you may well have some 59K in gain to pay tax on. Word of caution, planning a divorce may well be, financially more important than planning the wedding.

Answer 3

You split it for tax purposes the same way as you actually split up the money. But in your case it wouldn't matter, assuming that it was your main home - you won't owe any tax anyway,