When dividing certain assets in a divorce, it is important to consider the tax consequences. Although most property transfers incident to a divorce are not taxable, there may be future tax consequences to consider when dividing marital property.
Capital Gains Tax When Selling a Home after Divorce
For example, if one spouse is interested in keeping the family home in a divorce, it is important to understand that if they sell the property later, they can only exclude $250,000 of capital gains when filing individual taxes compared to $500,000 when filing jointly. If a marital home has substantially increased in value since the purchase date, understanding future tax consequences is important when dividing marital property in a divorce.
Carry Over Tax Basis When Transferring a Home in a Divorce
Because transfers of most property incident to a divorce is not taxable, the tax basis of the home carries over to the spouse receiving the property in a divorce. They will be liable for all capital gains taxes (minus exclusion) based on the original purchase price of the home. In other words, one spouse may receive nontaxable assets or money in exchange for the other spouse keeping the home in a divorce. In the process, the tax basis shifts to the recipient spouse calculated from the initial purchase of the home to the time of a future sale. It is important to divide marital property considering tax treatment of assets.
Contact an Illinois Marital Property Division Lawyer for Help
If you are considering keeping the family home in a divorce or have other assets to divide such as retirement accounts, it is important to work with an experienced property division attorney who will take into account present and future tax liabilities when dividing marital property. Contact the Libertyville law offices of Ronald L. Bell & Associates for immediate assistance at 847-495-6000.