Today TaxMama hears from Robin in Florida, who is getting divorced. “I am getting a house settlement as part of my divorce and I am not sure if I need to reinvest into a home? Or will I to have to pay taxes on the amount?”
When you get divorced and split up the assets that you both own, there is no tax effect. Especially not when you get a house, or bought out of a house.
Although, from the information you provided, it’s not clear if you’re simply being cashed out because your ex is getting another mortgage and giving you money – or the cash will come from the house being sold.
If the house is sold, and then the money is split between you, you have to report the sale. If you still both own it at the time of the sale, together, you’ll be able to use the $500,000 personal residence exclusion.
What I suggest that you do, is sit down with a good local tax professional to do some planning before you two take any steps to split up the estate.
There are other pitfalls when retirement plans are split – that can be avoided.
Do it correctly, there won’t be any taxes.
Do it wrong, and you may be facing taxes you didn’t expect.
And remember, you can find answers to all kinds of questions about divorce and other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
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- IRS Publication 523 :: Selling Your Home