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We guide clients through real estate transitions with expert advice on buying, selling, and Mortgages
We have lived in Tomball, Missouri City, Spring, Cypress and have worked from Richmond to The Woodlands to Sugarland to League City to Fulshear.
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During a divorce, when selling a marital home, you need to understand capital gains taxes.
The process of buying a new home is an exciting one for married couples. Unfortunately, when it comes time to sell a house, there may not be such happy circumstances.
When a sale of the marital home involves potential capital gains taxes, understanding the available exclusion tests is crucial. In general, both the homeownership and the use tests must be met in order to qualify for the Section 121 exclusion.
The current Capital Gains Exclusion on the sale of the primary residence currently allows for a $250,000 individual exclusion. Married couples are allowed a $500,000 marital exclusion.
See our Capital Gain Tax Calculator to find out how much capital gain taxes you could owe.
Read below for more details and Tax Rates below.
See IRS exclusion info
https://www.irs.gov/taxtopics/tc701 and https://www.irs.gov/taxtopics/tc409
Reduce Capital Gains Tax Using Expenses of Sale
Types of Selling Expenses That Can Be Deducted from Your Home Sale Profit
Deducting Home Improvements from Home Sale Profit for example:
NOTE: Regular home repairs, however, cannot be included in your list of home improvements.
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Buyout your Spouse
After a buyout, the selling spouse doesn't need to worry about capital gains tax because the sale was part of the divorce. But if you buy out your spouse, stay in the house, and later sell the house to a third party, capital gains tax will apply to that sale. You may exclude the first $250,000 of gain—as long as you've lived there for two years before selling or meet one of the IRS exceptions to that rule. Mortgage buy-out questions?
Read DO NOT ORDER YOUR OWN APPRAISAL
What if I sell the property to my spouse because of a divorce, Do I have to pay capital gains? No, don't worry. Capital gains taxes aren't due because this assumes the asset transfer was a result of the divorce. "Incident to divorce"
Transfers of property between spouses or "incident to divorce"
(a) General rule No gain or loss shall be recognized on a transfer of property from an individual to (or in trust for the benefit of)
(1) a spouse or
(2) a former spouse, but only if the transfer is incident to the divorce
Incident to divorce - a transfer of property is incident to the divorce if such transfer
(1) occurs within 1 year after the date on which the marriage ceases or
(2) is related to the cessation of the marriage.
Internal Revenue Code Section 1041 It specifies the rules that apply to property transfers between spouses who are divorcing or divorced. Property transfers that occur within one year of a divorce or in connection with the divorce are treated as incidental to the divorce.
The asset is not subject to taxation and carries over its basis to the receiving spouse.
Use our Capital Gain Tax Calculator to estimate your after-tax investment gains. Capital Gains Tax When You Sell Your House at Divorce
Have other Divorce Tax Questions Read our other blog post.
Title Insurance Basics and Why Title insurance is important During Divorce
We can help determine how to calculate buying someone out of a house and how to give equity to a spouse in a divorce?
Ownership Rule - Under the ownership rule, an individual must own the marital home for the individual tax exclusion, or a couple must own it jointly for the marital tax exclusion.
Ownership can be established in two ways. First, legal ownership of the property can be proven when one or both parties hold title to the property. Ownership can be held individually or jointly in various ways.
Ownership in the marital home may also be established through legal marriage. If a married couple files jointly, only one spouse must meet the ownership requirement. It may be possible to increase the available exclusion to $750,000 if one of the divorcing spouses remarries and the new spouse lives in the home for 2 of the previous 5 years before the sale.
It is important to note that if the marital home will be sold in the future, the marital exclusion will be required, and both spouses must remain on the title after the divorce has been finalized. Divorced couples may no longer be eligible for marital exclusion once the chain of ownership has been broken. We believe in the power of home ownership in America, as it is where tons of wealth is created! What are 4 ways to determine your home's value?
Make certain you are protected. Know your Home's Real Value.
Ownership & Use Test
The Residence Use Test requires each party to have lived in the home as their primary residence for at least 24 months out of the previous five years.
During the last five years, you must have lived in the home as your primary residence for two years. The 24 months of residence can fall anywhere within the five-year period and doesn't have to be in one block of time. A total of 24 months (730 days) of residence are required during the five years. If a married couple files jointly, they each must meet the residence requirement individually to qualify for the full exclusion.
It is still possible for the out spouse to meet the Residence Use Test even if they have not lived in the marital home for two of the five previous years before the sale, as long as:
If ownership in the home is transferred to one spouse without legal ownership via title vesting, ownership in the home may be counted for any time when the other spouse owned the home as time owned. However, each spouse must meet the residence use requirement on their own.
The Ownership and Use Tests may be met during different 2-year periods. However, both tests must be completed during the five years ending on the date of the sale. Generally, a person is not eligible for the exclusion if they excluded the gain from the sale of another home during the two years before the primary home sale.
The Net Investment Income Tax is imposed by section 1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates, and trusts that have income above the statutory threshold amounts.
A 3.8 percent Net Investment Income Tax (NIIT) applies to individuals, estates, and trusts that have net investment income above applicable threshold amounts.
Individuals
In the case of an individual, the NIIT is 3.8 percent on the lesser of:
The Net Investment Income Tax went into effect on Jan. 1, 2013. The NIIT affects income tax returns of individuals, estates, and trusts, beginning with their first tax year beginning on (or after) Jan. 1, 2013.
The NIIT is applied to the lesser of net investment income or modified adjusted gross income minus the income threshold. Modified adjusted gross income (MAGI)
Use our Capital Gain Tax Calculator to estimate your after-tax investment gains. Capital Gains Tax When You Sell Your House at Divorce
If you are considering keeping the house marital home after Divorce, make sure you know the 6 areas of Risk.
Partial Exclusion of Gain for Divorcing Couples
When divorcing couples do not meet the Eligibility Test for the Ownership and Use periods, they may still qualify for a partial exclusion. The IRS also allows a partial exclusion of gains for couples who become divorced.
Come Engage and Learn from Divorce Experts!
As an example, Sam and Sara purchased a new home in June 2020 for $325,000. In February 2022, they are getting a divorce and must sell the marital home.
The home is currently valued at $475,000. Their capital gain will be $125,000 after they deduct the cost of selling the home.
The standard rule for using the capital gains exclusion requires that Sam and Sara must have lived in the home for 2 of the last five years; however, in their case, they have only lived in the house for 20 months.
Therefore, Sam and Sara may use a prorated capital gains exclusion equivalent to 20/24 or 83% of the available exclusion amount. It is recommended that they speak with a tax accountant to verify their prorated exclusion.
Mediation what do you need to know?
There are several options that spouses need to consider when deciding on what to do with the family house. Real Estate and Divorce what are the options?
If you are interested in learning more about an Owelty lien and if you are thinking about divorce, contact us today.
Can Divorce Support Income be used for a Mortgage?
Do you know if the house is a Separate or Community Property? What is separate property in Texas?
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Here are long-term Capital Gains Tax Rates for 2021
Here are Long term Capital Gains Tax Rates for 2022
Please consult with your CPA or tax professional beforehand.
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We can help you during all stages of divorce, not just Real Estate, as we have relationships with Lawyers, CDFA's, Inspectors, Mediators, Counselors, and more. We are a local Realtors and Lenders with the knowledge you need. Trust that you will always be working with professionals, and let us support you whenever you need it.
We work with Family Law Attorneys daily.
If you live in the Houston area and are thinking about or going through a divorce, contact us today. We are your Houston Divorce Real Estate experts.
See our Videos on Divorce and Real estate
No, we can help with all real estate transactions. While Divorce Real Estate is our primary focus, all real estate transactions come with risks. We help uncover the risks that need to be addressed in almost every transaction. Read our blog.
Also, Check our New book, Two Roads, One Journey: Navigating Divorce Through God’s Grace - Divorce is more than an ending—it's a new beginning. Amber and Scotty share their inspiring journeys of faith and healing, offering hope and guidance to transform this challenging season into an opportunity for personal growth.
Even though you are not going through a divorce, it does not mean that our Network of experts is any less valuable to you.
We help with all transactions, selling a home and buying a home.
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Even a judge cannot alter a decision made by the husband and wife in mediation about who keeps the house.
But even if you get a divorce decree or a mediation order, it doesn't mean everything is decided about the house. While the divorce decree says who gets the house, it does not legally transfer the property.
We are divorce lending specialists with over 20 years of proven experience helping clients who are going through a divorce with their mortgage needs.
So, you need to make sure the property is solely in your name, or you may have trouble selling it in the future. What is Community property vs Separate property?
In addition to providing answers to questions about the home, our team is here to help you discover potential unknowns that might not have been apparent. We are here to assist you in making informed decisions about your home and help uncover areas of risk you might not know.
This divorce buyout calculator can give you an idea of how much equity you have to divide with your spouse. We can help determine how to calculate buying someone out of a house? How do I give my spouse equity in a divorce?
This will help you answer the question like, Can I keep the house or should we sell it? Can I Buy out my ex-spouse's Equity?
This Buyout Calculator can calculate three different scenarios and how much equity will be available to split in each case.
refinance divorce buyout
The divorce process can make real estate even more complicated. It is our goal to provide the answers to common questions, such as, What is my House worth?
Divorce Real Estate is our primary focus. We help uncover the risks that need to be addressed in almost every transaction.
We are local Houston Real Estate Agents and Lenders that specialize in divorce. There are several options that spouses need to consider when deciding on what to do with the family house.
Can a judge order you to sell your house?
Yes, this is a possibility. The Gifford Group is here to help you make informed decisions before you get to the point.
Even if the court orders you to sell the house, we can still help you. As a full-service real estate firm, we assist with all transactions, from selling and buying new homes.
We have both been through Divorce before, and we can assist you in navigating through the unknowns with the House. We are here to help. Remove the Fear, Learn the Facts. Our experience with divorce means we can assist you in navigating the unknowns. While going through a divorce, choosing a Realtor® is a very important decision. You may ask yourself.
Do I need a Realtor if I am going through a divorce?
The answer is YES, but you do not just want any Realtor, but one that Specializes in Divorce Real Estate.
When you are going through a divorce, your home is one of your largest assets, and you want to stay protected.
We can lead you through the divorce laws in Texas.
Use the Divorce Alimony Calculator below to calculator the total maintenance support you will receive and for how many years?
Experts In Divorce From The NADP- Our company is a member of the Houston chapter of The National Association of Divorce Professionals. Our monthly meetings include Family Law Attorneys, Divorce Coaches, CDFAs, Lenders, Divorce Real Estate Specialists, and More. There are many great success stories we hear and share about how we are able to help divorcing clients, which is one of the main reasons we are a part of this group. In addition to this, we share referrals to assist clients experiencing difficulties in the divorce process. Second, the goal of NADP is to enable us to gain insight into areas outside of our main areas of expertise by sharing knowledge within the group.
We can provide a free consultation just like Divorce Lawyers in Houston, TX.
Do you want Divorce Support from Local Lenders and Licensed Realtors? We hold the RCS-D designation - Real Estate Specialist - Divorce and the (CDS) Certified Divorce Specialist designation. We are equipped with valuable divorce-specific information and a customized communications skill set to work with and collaborate on low and high conflict divorce cases.
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