Divorce and Personal Residence Considerations

When considering the issue of who gets the house when a divorce arises, there are four options that are frequently used: sell the house, have one spouse buy out the other's half, have both spouses continue to own the property jointly, or simply agree that one spouse (typically, a homemaker) should get the house outright along with (or instead of) other assets. These options involve different tax effects. It is important to understand how tax basis and holding periods are calculated in these cases. It is also important to understand how the sale of a marital residence relates to the exclusion of capital gain income.

In general, property transfers between spouses during a marriage or incident to a divorce are not taxable. However, the timing of transfers between spouses can have tax ramifications. Additionally, transferring the home to third parties can create tax consequences.

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