How does transferring real estate in a divorce impact taxes?

On Behalf of | Jan 16, 2025 | High Asset Divorce |

High-asset divorces often involve complex property division, especially when transferring real estate. Understanding the tax implications of these transfers can help protect financial interests and avoid unexpected costs.

What to know about capital gains taxes

When transferring a home or other real estate during a divorce, capital gains taxes might come into play. Florida has no state income tax, but federal tax laws still apply. 

If one spouse sells their part of the house, they may not have to pay taxes on profits up to $250,000 if they’re single. Married couples can avoid taxes on profits up to $500,000 if the house was their main home for two out of the last five years. Transfers included in a divorce settlement usually avoid these taxes if done within a year of the divorce.

Taxes on rental or investment properties

Transferring investment or rental properties during a divorce requires careful consideration. Unlike primary residences, investment properties do not qualify for the same capital gains tax exemptions. The spouse receiving the property may also inherit the original purchase price (basis), potentially leading to higher tax liabilities if the property is sold later. Consulting tax professionals can help assess the financial impact.

Impact of property settlements on deductions

Real estate transfers can also affect who gets tax deductions. Mortgage interest and property taxes are usually handled by the person who keeps the property. In Florida, the law says property must be divided fairly, and taxes are part of that decision.

Moving forward with less stress

Dividing real estate during a divorce doesn’t have to lead to big tax surprises. Planning ahead and understanding the tax rules can help both parties move on with fewer financial worries.

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