Can divorcing couples each claim $250k capital gains exclusion when selling home?

Thank you for the clear explanation. That's exactly what I was hoping to hear! If we each only report our portion of the gain ($250k each), and we each get a $250k exclusion, then selling now makes the most sense for us. One follow-up question: Does it matter if we sell the house before or after the divorce is finalized, as long as both happen in 2024? Will that affect how the capital gains exclusion works?

The timing of the sale relative to the finalization of your divorce doesn't affect the capital gains exclusion, as long as both events occur in the same tax year (2024 in your case). The key requirement is that you both qualified for the exclusion by having lived in the home as your primary residence for at least 2 of the 5 years preceding the sale. Remember that your filing status for the entire year is determined by your marital status on December 31st. Since your divorce will be final in 2024, you'll file as single (or head of household if you qualify) for the entire 2024 tax year when you file in 2025, regardless of when during 2024 the house sale occurred.

How detailed does the analysis get? I'm about to go through a divorce too and we have a house plus some investment properties. Would it handle that complexity?

Sounds interesting but I'm always skeptical about these online tools. Does it actually give advice specific to divorce situations? Tax implications during divorce are super complex.

The analysis is quite detailed. It breaks down each property separately and shows you the tax consequences for different scenarios like selling vs. buyouts. It handled my situation with our primary residence and a rental property, so it should work for your investment properties too. For divorce-specific tax advice, yes that's actually one of its strengths. It focuses specifically on tax implications during major life events like divorce. It analyzes how different property division strategies affect your taxes and helps identify the most tax-efficient approach. The tool even creates documentation you can share with your attorney to support your proposed settlement.

How does this service actually work? Does it just connect you to the regular IRS phone line or is there something else to it? I've been trying to get through to them for days.

Sorry but this sounds too good to be true. The IRS wait times are notoriously horrible. I've literally spent HOURS on hold with them. You're telling me this magically got you through in 15 minutes? And then the IRS agent actually gave you useful advice?? Not buying it.

It connects you to the regular IRS phone line, but they use some kind of technology that navigates the phone tree and waits on hold for you. When an actual IRS agent comes on the line, you get a call back connecting you directly to that agent. So instead of waiting on hold yourself for hours, you just get a call when someone's actually available to talk. Yes, it really works! I was skeptical too. I had spent almost 3 hours on hold the week before and eventually gave up. With Claimyr, I got a call back in about 15 minutes connecting me to an IRS agent. I think I just got lucky with timing, as sometimes it might take longer, but it definitely works. The agent was actually very helpful - explained exactly how the capital gains exclusion works for divorcing couples and even emailed me the relevant tax publication sections.

What about partial exclusions? I thought I read somewhere that if you're selling because of a "life event" like divorce, you might qualify for a partial exclusion even if you don't meet the full 2-year requirement?

You're absolutely right! There are provisions for partial exclusions if the primary reason for the sale is a qualifying life event like divorce. In those cases, you calculate the exclusion as a fraction based on how long you did live there divided by the 2-year requirement. For example, if you only lived in the home for 1 year (half of the required time), you'd get half of the normal exclusion amount - so $125,000 instead of $250,000. This can be really helpful for couples who separated earlier but are just now finalizing everything.

We did this! Kept the house for 3 years after the divorce until our youngest graduated. Tax-wise, it worked out fine. The spouse who didn't live in the house can still qualify for the capital gains exclusion if: 1) They're on the title 2) The divorce decree requires the eventual sale and division of proceeds 3) The other spouse maintained it as their primary residence We sold 3 years post-divorce and both got our $250k exclusions. Just make sure your divorce agreement clearly spells out all the details about maintenance costs, who pays the mortgage, and exactly how proceeds will be divided.

This is really helpful advice about the practical side of things! I hadn't thought about explicitly stating the sale proceeds division in the divorce decree even if we sell first - that's a great point about preventing future disputes. Your comment about being equally involved in the sale process really resonates with me. My spouse and I have been getting along well throughout this process, but I can see how real estate decisions could become a source of conflict if we're not both fully engaged. The point about refinance costs is something I definitely need to factor in. With interest rates where they are now, the cash-out refinance option is looking less attractive anyway. It sounds like for most people in our situation, selling and splitting the proceeds while both getting the capital gains exclusion is the cleanest approach. Thanks for sharing your experience - it's reassuring to hear from someone who went through something similar!

This is such valuable information about home improvements! I never realized we could add those costs to our basis to reduce the gain. We did a major kitchen renovation ($35k) and bathroom remodel ($15k) about 3 years ago, plus we had the roof replaced last year ($18k). If I'm understanding correctly, that would add $68k to our original purchase price basis, bringing our total gain down from $500k to around $432k. That would mean we'd each report about $216k instead of $250k, giving us both a nice cushion under the exclusion limit. Do you know if things like new HVAC systems or flooring replacements count as improvements? We also had the hardwood floors refinished and installed a new furnace, but I'm not sure if those qualify. Thanks for mentioning the selling costs too - I hadn't factored in that realtor commissions and other closing costs could further reduce our taxable gain. This is exactly the kind of detail I wanted to understand before meeting with our CDFA!

Yes, HVAC systems and flooring definitely count as qualifying improvements! New furnace, A/C units, and hardwood floor refinishing all add to your basis. The IRS generally allows improvements that add value to your home, prolong its useful life, or adapt it to new uses. Just to clarify the math on your situation - with those improvements ($68k) plus your new HVAC and flooring work, you could easily be looking at $80k+ in total improvements to add to your basis. That would bring your gain down even further, giving you both substantial cushion under the $250k exclusion limits. One tip: make sure to separate out any regular maintenance costs from actual improvements when you're gathering receipts. For example, fixing a broken furnace is maintenance, but installing a new energy-efficient system is an improvement. Your CDFA should be able to help you categorize everything properly. The selling costs reduction is often overlooked but can be significant - realtor commissions alone are typically 5-6% of the sale price, which on an $850k sale could be over $40k that reduces your taxable gain. Combined with your improvements, you might find yourselves well under those exclusion thresholds with room to spare!