Divorce Settlement

Today TaxMama hears from Misty in Missouri who wants validation. “I received a settlement in my divorce for half the equity in our home. It was $15,000. I think in reading this is not going to be taxable. Is that correct? I’m keeping my fingers crossed that it isn’t!”

TaxMama answers a question on Tax

Dear Misty,

Great news!

You’re right. Getting cashed out for half the equity in your home is not a taxable event. In this case, it would not be taxable even you and your ex husband sold the house first and then split the money. Why? Because the profits are under $250,000 each.

Beware, though. If you and your ex have been refinancing and drawing out cash – and your real profits are over $500,000…there could be a taxable event. You sound too smart for that.

Just so you know, most property splits in a divorce are not taxable. About the only things that might be taxable are splits of IRAs and other retirement accounts. Even then, if you roll the funds over to your own IRA, they would not be taxable until you actually were to draw the money.

You can read more about tax issues relevant to divorced or separated folks in IRS Publication 504.
http://www.irs.gov/publications/p504/

Congratulations on your new life!

And remember, you can find answers to all kinds of questions about divorces and other tax issues, free. Where? Where else? At TaxMama.com.

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