Divorce/ Capital Gains


S

Starla

My husband and I purchased a home less than one year ago in
California. We are now heading toward divorce, and our home
has appreciated in value by a large amount. Under California
law, if a home is sold with a profit in less than a two-year
period of time, capital gains taxes must be paid. Does
anyone know if there is an exeption to this rule in the case
of divorce? Any help would be greatly appreciated.
 
Ad

Advertisements

E

Ed Zollars, CPA

Starla said:
My husband and I purchased a home less than one year ago in
California. We are now heading toward divorce, and our home
has appreciated in value by a large amount. Under California
law, if a home is sold with a profit in less than a two-year
period of time, capital gains taxes must be paid. Does
anyone know if there is an exeption to this rule in the case
of divorce? Any help would be greatly appreciated.
Well, actually that's under *federal* law, which the state
of California conforms to in this case.

There is a partial exception for sales where the seller(s)
fail to meet any of the three two year tests. The three
tests that you generally have to meet to exclude up to
$250,000/$500,000 of gain are these:

1. Have owned the home for at least two years of the five
years prior to the date of sale

2. Have used the home as your *principal residence* for at
least two years of the five years prior to the date of sale

3. Have not excluded any other sale of a residence under
Section 121 in the two year period prior to the sale you
wish to exclude

Fail any one of those and it's tough luck unless you can
qualify for relief under Section 121(c). In your case, you
are trying to meet the "unforeseen circumstances" test.

Temporary Regulation 1.121-3T defines what qualifies under
the various tests, and divorce is one of the qualifying
exceptions. In that case, the maximum you can exclude is
reduced by the ratio of the *shortest* of the three periods
noted above (ownership, use or last excluded sale) to two
years--so if you had owned and used it one year, and had not
excluded a gain in the two years prior, then your limits
would be $125,000/$250,000.
 
Ad

Advertisements

D

Dave Woods

Starla said:
My husband and I purchased a home less than one year ago in
California. We are now heading toward divorce, and our home
has appreciated in value by a large amount. Under California
law, if a home is sold with a profit in less than a two-year
period of time, capital gains taxes must be paid. Does
anyone know if there is an exeption to this rule in the case
of divorce? Any help would be greatly appreciated.
Divorce is an exception.
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top