Who pays the capital gains tax after divorce?

Whether one spouse will pay the cap gains tax or they will share the burden of the tax, depends. The court does consider the cap gains tax in making a distributive award. Let’s say husband and wife own a home. They bought the home 20 years ago for $10,000. So you have a basis of $10,000.00. There is no mortgage. Now they are getting divorced. The house is worth $100,000. If the house is sold for $100,000.00 then the couple stands to have a gain of $90,000.00. And they would owe capital gains tax on that amount. (The same would be true for stocks or other assets, by the way)

Now, let’s say that the husband buys out the wife instead of selling the house, and the court has ordered a 50/50 split. Then that wife would get $50,000.00. But as a couple they owe capital gains on $90,000 of that money if the property were sold at that time. The husband plans to sell the home within 3 months. The husband’s attorney could argue that the wife should not get the full $50,000. The attorney could argue that the wife’s $50,000 should be reduced by the reasonable cap gains percentage since the husband plans to sell in a specific time frame.

But let’s say that the husband cannot say for sure when and if he plans to sell the house (remember that the capital gains tax is incurred upon sale only). Then the court, at least in the First department, has indicated that the burden is on the parties affected to present “specific, concrete evidence as to the tax ramifications” and that barring that, the court will not order a reduction in one spouse’s equitable share for a tax liability that may or may not be incurred in the foreseeable future.

The court has discretion not to order cap gains tax reduction even if there is a cap gains tax, and even if one spouse would be disproportionately affected by having to pay the tax alone.

With that all said, couples, each of them, are allowed about $250K exclusion from their capital gains tax liability if they lived in the house at least 2 years before the sale. So all together that is $500 Read this Forbes article as an example.

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