Lifetime Planning

Patricia Barrett CFP CDFA

832-858-0099

  • About Us
    • Getting Started
    • Summary of Divorce Services
    • Frequently Asked Questions About Divorce Financial Planning
    • Testimonials
  • Cooperative Mediation
    • Cooperative Divorce Mediation
    • How Texas Mediation Works
    • Divorce Mediation Articles
  • Divorce Financial Planning
    • Our Approach to Divorce Financial Planning
    • Community Property
    • Separate Property
    • Long Term Planning
    • Financial Planning Articles / Case Studies
  • Collaborative Divorce
    • Collaborative Divorce
    • How Collaborative Divorce Works
    • How We Help
    • Collaborative Divorce Articles
  • Events
  • Blog
  • Contact Us
You are here: Home / Blog / Divorcing couples may qualify for a tax break on home sale gains

Divorcing couples may qualify for a tax break on home sale gains

May 17, 2017 By Patricia Barrett

In many divorces, couples end up selling the family home — before, during or shortly after the divorce — in an effort to practically adjust to post-divorce lifestyles and expenses. In order to avoid paying federal income tax on the gain on a home sale, divorcing couples should explore their options — preferably before the divorce is final — to use the federal income tax exclusion.

Depending on very specific criteria and the unique situation of each divorcing couple, this option could potentially offer a significant financial advantage — if the timing works in their favor and they agree to some advanced planning to accommodate the qualifications.

The sales gain exclusion rules apply strictly to the sale of a couple’s primary residence, as opposed to the sale of a vacation home or other real estate. The exclusion (no federal income tax is owed) for an individual, applies to the gain on a home sale up to $250,000. A married couple, filing jointly, can exclude up to $500,000 of gain on a home sale. However, to qualify for the exclusion, a seller must have owned and occupied the property as a principal residence for at least two years during the same five-year period. To claim the $500,00 exclusion for a couple, at least one spouse must pass the ownership test, and both spouses must pass the use test. Here are two examples:

Home sale occurs before divorce:

If a soon-to-be divorced couple meets the qualification rules above, sells their primary residence, and are still legally married at the end of the year of sale (because their divorce is still not yet final), they can claim the $500,000 exclusion. They can claim the full amount, if they file a joint return, or if they file separate returns, using married filing separate status, each spouse can exclude up to $250,000 of his or her share of the gain. Again, to qualify here, each spouse must have owned his or her share of the home for at least two years during the five-year period prior to the sale date, and used the home as a principal residence for at least two years during that period.

Home sale occurs in year divorce is final or shortly thereafter:

When a couple is divorced in the same year their home is sold, they are divorced for that entire year according to the IRS. Therefore, they cannot file income tax returns jointly. However, if both spouses meet the required ownership and residency requirements as stated above, each spouse can exclude $250,000 of their respective shares of the home sales gain when they file separately.

If one spouse ends up with sole ownership of the home after divorce, then sells it, he or she can only exclude $250,000 of the sales gain as an individual. However, if the single spouse remarries, and lives in the home with a new spouse for at least two years before selling it, the couple may qualify for the $500,000 sales gain exclusion, if they file their income taxes jointly.

If your situation falls outside of the above examples, I recommend consulting with a Certified Divorce Financial Analyst such as myself for a closer examination of the potential for making this exclusion work for you.

Filed Under: Blog, Divorce Planning, Financial Planning Tagged With: divorce finance, divorce financial planning, Divorce Planning

Contact Us

Call Patricia for a
Free Consultation
832-858-0099

From Our Blog

The special needs child and divorce

The special needs child and divorce

While all children need the continued support and care of parents, children with special needs require unique consideration during and after a divorce. The financial support allotted to a child … [Read More...]

Lifetime Planning, LLC

Phone: 832-858-0099

  • Email
  • Facebook
  • LinkedIn

Areas Served:

Cities

The Woodlands
Alvin
Baytown
Clear Lake
Conroe
Cypress
Dayton
Downtown Houston
Fairfax
Fort Bend
Friendswood
Galveston
Hockley
Houston Heights
Humble
Jersey Village
Katy
Kemah
Kingwood
La Marque
League City
Magnolia
Memorial
Midtown
Missouri City
Montrose
Pasadena
Pearland
River Oaks
Shenandoah
Sienna Plantation
South Houston
Spring Valley
Spring
Sugar Land
Texas City
Tomball
Victoria
West University
Also serving all Texas cities working by email, phone, and fax.

Counties:

Harris
Montgomery
Liberty
Chambers
Galveston
Brazoria
Fort Bend
Waller

Disclaimer

Information provided in this website is not meant to be construed as legal advice and does not necessarily predict decisions that will eventually be made by a court of law. It is strongly recommended that you consult competent legal advice if your divorce includes children or property issues.

Copyright © 2025 Patricia Barrett CFP CDFA · All Rights Reserved

· · ·

Log in