Family Tax Matters: Capital Gains, Filing Status, Deductions and Alimony

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Now that tax time is approaching, we thought it a good idea to discuss some common tax issues associated with divorce and separation. As with every other aspect of divorce, a well-prepared decree and clear communication with your former spouse are the best ways to avoid misunderstandings that could cause you problems when dealing with the Internal Revenue Service (IRS). Another way to avoid problems is to utilize the services of your tax professional before you make filing decisions that you could come to regret later.

Capital Gains Tax and the Principal Residence Rule.

More often than not, the marital residence is the most valuable asset that a married couple owns. During the divorce, it is not unusual for the couple’s home to be sold and the proceeds distributed between them. If the home was sold for more than it was purchased for, meaning there was a gain on the capital asset, then there are specific rules affecting the spouses’ capital gains tax liability.

Transfer Between Spouses. In general, if you transfer your interest in the marital home to your spouse, or former spouse as incident to your divorce, you will not have a capital gain or loss. That’s the result even if you received cash or some other property in exchange for your interest in the marital home. (The exception is if your spouse or former spouse is a nonresident alien.)

The marital “home” could be a house, houseboat, mobile home, cooperative apartment, or condominium, but generally not vacant land.

When your home is sold and there is a capital gain, can you avoid a capital gains tax?

That depends on...

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Scott David Stewart, Stewart & Lane, PLC | Attorney Advertising

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