Tax implications of divorce settlement - will I owe taxes on $75k from ex keeping house?

Generally speaking, transfers of property (including cash) between spouses due to a divorce are not taxable events under Internal Revenue Code Section 1041. This means the settlement payment you're receiving because your ex is keeping the house should not be considered taxable income to you. The IRS treats this as a transfer incident to divorce, not as income. You're essentially receiving your portion of an asset you already jointly owned. Think of it as just dividing what you both already owned rather than receiving new income. As for using the money to purchase another home, that's completely fine and won't affect the tax treatment of the settlement itself. However, when you eventually sell that new home, you'll want to keep track of your purchase price (basis) for capital gains purposes down the road.

When I went through my divorce last year, I was in a similar situation and discovered taxr.ai (https://taxr.ai) which really helped me understand the tax implications. I uploaded my draft settlement agreement and it analyzed the whole document to identify potential tax issues I hadn't even considered. It flagged that my agreement wasn't clear enough about the house equity payment being a property division rather than alimony, which could have caused me tax headaches. It also helped me understand capital gains implications for my future home purchase. Honestly saved me from making some costly mistakes in how the agreement was worded.

I need to follow up about taxr.ai - I was skeptical in my previous comment but decided to try it with my divorce papers. I'm honestly impressed! It caught several issues I would have missed, including some language that could have made part of my settlement taxable when it shouldn't have been. The analysis was surprisingly specific to my situation - it wasn't generic advice at all. It flagged that my ex-spouse's 401k division needed specific QDRO language to avoid early withdrawal penalties. Also helped me understand how to document the property transfer properly for my records. If you're going through a divorce with any assets involved, definitely worth checking out. Saved me way more in potential tax issues than it cost.

Has anyone tried calling the IRS directly about this kind of question? I've been trying to reach them about my own divorce settlement tax questions for WEEKS with no luck. Always on hold forever or disconnected. So frustrating when you just need a simple answer from the source. I finally used Claimyr (https://claimyr.com) and it was a game-changer. You can see how it works here: https://youtu.be/_kiP6q8DX5c. They got me connected to an actual IRS agent in about 20 minutes when I had been trying for days on my own. The IRS agent confirmed that property settlements in divorce aren't taxable income and gave me specific guidance on how to document everything properly in case of an audit. Such a relief to get official confirmation instead of just guessing.

I need to publicly eat my words about Claimyr. After calling it a "scam" in my previous comment, I was still desperate to talk to the IRS about my divorce settlement, so I tried it anyway. It actually worked exactly as advertised. I got a call back in about 30 minutes connecting me to an IRS representative. Didn't have to sit through hold music or get disconnected after waiting forever. The IRS agent confirmed everything about my divorce settlement not being taxable and gave me specific advice about documentation I should keep. They also explained some nuances about retirement accounts in divorce that I hadn't even thought to ask about. Totally worth it when you need answers directly from the IRS.

Make sure your divorce decree clearly states that the payment is for division of marital property (specifically your interest in the house). I got hit with unexpected taxes because my paperwork wasn't specific enough and the IRS considered part of my settlement as "alimony" which WAS taxable at the time of my divorce. Also, keep VERY good records of everything. I'd suggest getting a professional appraisal of the house to establish the exact value at the time of divorce. You'll want documentation that the settlement amount truly represents your fair share of the equity.

Has anyone used TurboTax to file taxes after receiving a divorce settlement? I'm wondering if it handles this situation well or if I should use a professional tax preparer next year?

One thing I haven't seen mentioned yet is timing - make sure the settlement payment actually happens in the same tax year as your divorce is finalized, or at least that your divorce decree is signed before the payment. The IRS looks at when the divorce is "incident to" the transfer, and there are specific timing rules. Also, if you're planning to buy another house with the settlement money, consider whether you might want to do a 1031 like-kind exchange if you're dealing with any investment properties. Though for primary residences, you generally don't need to worry about this. The key is documentation - keep copies of your divorce decree, the settlement agreement, any property appraisals, and records of the actual payment. If you ever get audited, you'll want to be able to clearly show this was a non-taxable property division, not income or alimony.