How are capital gains taxed on home sale during divorce proceedings?

You've got a couple things working in your favor here. The primary residence exclusion allows you to exclude up to $250,000 of capital gains ($500,000 for married filing jointly) if you've owned and used the home as your main residence for at least 2 of the 5 years before the sale. Since you've been there 9 years, you easily meet that requirement. The fact that your soon-to-be ex moved out 6 months ago shouldn't be an issue for the exclusion. The IRS generally looks at the full 5-year period, not just the moment of sale. Both of you should qualify for the exclusion. As for timing the divorce versus the sale - if you sell while still married (filing jointly), you could potentially exclude up to $500,000 of gain. If you divorce first and sell later, you'd each get a $250,000 exclusion on your respective portions. From what you've shared, either way seems like you'd be covered since your expected gain is about $300,000 total ($620,000 - $320,000).

I was in a similar situation last year and found this amazing tool called taxr.ai (https://taxr.ai) that really helped me figure out the capital gains exclusion during my divorce. I was super confused about how the whole thing worked with timing the sale vs. finalizing the divorce. The tool analyzed our specific situation and gave me a detailed breakdown of different scenarios and potential tax implications. It helped me understand that part of the capital gains exemption depends on whether you're still legally married at the end of the tax year when you sell the house. Their system asked questions about when we purchased, how much we paid including improvements, and our timeline for divorce finalization. Really helped me make an informed decision.

Just wanted to follow up about that taxr.ai site someone mentioned. I was skeptical at first (like I mentioned in my question), but I decided to try it out for my situation. I'm so glad I did! It walked me through my specific divorce scenario with the house sale and showed me that in my case, we'd actually save about $12,000 in taxes by finalizing the divorce AFTER selling the house. The analysis it provided showed exactly how the capital gains exclusion would apply in each scenario and even factored in some home improvements we'd made that increased our cost basis. The documentation was clear enough that both our attorneys understood exactly what we were talking about. Definitely helped us make a more informed decision during an already stressful time.

If you're trying to contact the IRS to get clarification on your specific divorce/home sale situation, good luck getting through to an actual person! I was in the same boat last year and spent HOURS on hold only to get disconnected. Finally found this service called Claimyr (https://claimyr.com) that got me through to a real IRS agent in less than 20 minutes when I'd been trying for weeks. They have this system that basically holds your place in line and calls you when an agent is about to pick up. You can see how it works here: https://youtu.be/_kiP6q8DX5c I had specific questions about how my divorce settlement affected my capital gains exclusion, and getting those answers directly from the IRS gave me so much peace of mind. They clarified that transfers between ex-spouses as part of a divorce are usually tax-free under Internal Revenue Code section 1041.

I need to publicly eat my words from my earlier comment where I called Claimyr a potential scam. After struggling for THREE DAYS trying to get through to the IRS about my divorce/capital gains situation, I gave in and tried the service. Holy crap, it actually worked exactly as promised. I got a call back when an IRS agent was ready, and I finally got clear answers about how the timing of my home sale relative to my divorce would affect capital gains tax. For anyone dealing with this specific situation - the IRS agent confirmed that if you meet the ownership and use tests, a divorce doesn't disqualify you from using the capital gains exclusion, even if one spouse moves out before the sale. Turns out the capital gains exclusion rules have some special provisions for divorce situations that I never would have figured out otherwise. Definitely worth it.

Don't forget to factor in any capital improvements you've made to the house during those 9 years! Things like a new roof, kitchen renovation, finishing a basement, etc. can all be added to your cost basis, which reduces your capital gain. My ex and I kept terrible records of our improvements and probably paid more tax than we needed to when we sold after our divorce.

Has anyone been through this situation in a community property state? I'm in California, and I'm not sure if that changes how the capital gains are divided. My lawyer keeps telling me it's different here.

Just wanted to add some reassurance based on your numbers - it looks like you're in a really good position tax-wise! With your original purchase price of $320,000 and expected sale of $620,000, your gain is $300,000. Even if you end up divorced and each claiming the $250,000 individual exclusion, you'd only have about $50,000 of taxable gain total to split between you. One thing I haven't seen mentioned yet - make sure you document which spouse lived in the house during what periods. The IRS requires that you used the home as your main residence for at least 2 of the 5 years before the sale. Since your ex moved out 6 months ago, she still easily meets this test, but keeping good records helps if there are ever questions. Also, don't forget about closing costs when you sell - those can be subtracted from your sale proceeds, which further reduces your taxable gain. Things like realtor commissions, title insurance, and transfer taxes all count. You're dealing with enough stress right now - at least the tax situation looks manageable!

I'm going through something very similar right now and your post really resonated with me. One thing I learned from my tax attorney is that you should also consider whether either of you has used the capital gains exclusion on another property within the past 2 years. The IRS has a rule that you can only use the $250,000 (or $500,000 if married filing jointly) exclusion once every 2 years. Also, since you mentioned this is your biggest asset, make sure you coordinate with your divorce attorney about how the tax implications fit into your overall property settlement. Sometimes it makes sense for one spouse to take a slightly smaller share of other assets to account for any tax burden from the house sale. Given your numbers ($300k gain minus improvements and closing costs), you're likely looking at minimal or no capital gains tax regardless of when you finalize the divorce. But having that conversation with both your divorce attorney and a tax professional can help you optimize the overall settlement. Hang in there - it does get easier once all the paperwork is finalized!

I'm so sorry you're going through this difficult time. Divorce is stressful enough without having to worry about tax implications too. Based on what you've shared, it sounds like you're in a pretty good position tax-wise, which should be one less thing to stress about. From the numbers you provided, your capital gain would be around $300,000 ($620,000 sale price minus $320,000 purchase price). But as others have mentioned, don't forget to add any qualifying home improvements to your cost basis - that kitchen reno and HVAC replacement you mentioned could reduce your taxable gain significantly. One thing I'd recommend is getting everything documented now while you still have access to all the records. Make copies of the original purchase documents, receipts for major improvements, and any other relevant paperwork. During my own divorce, things got scattered between lawyers and moving, and it was much harder to track everything down later. The good news is that with the capital gains exclusions available and the improvements you've made, you'll likely owe little to no capital gains tax regardless of whether you finalize the divorce before or after the sale. Focus on what makes the most sense for your overall settlement rather than just the tax implications. Wishing you the best through this process!