Divorcing couples in California have to address their community property. The income that either spouse earned during the marriage and any assets acquired with that money are part of the marital estate.
Spouses can either work out their own arrangement for those shared assets, as well as their shared debts, or they can ask a judge to divide their property. When the marital estate includes a home, spouses may agree to refinance so that one of them can keep the home. They might also agree to sell the house where they live together and split the proceeds.
In scenarios where the sale of one’s house is part of the property division process, do spouses need to worry about capital gains taxes?
Real property sales can trigger federal taxes
Selling existing assets that have appreciated in value can lead to capital gains taxes. People have to report the appreciated value when they file their annual income tax returns.
Capital gains taxes may apply to investments and business holdings, as well as real estate. Thankfully, there are exemptions available for those selling their primary residences.
Typically, individuals can exempt up to $250,000 in increased home value when determining if they must pay capital gains taxes. If couples sell the home and then file a final joint income tax return together, they may be able to exempt up to $500,000 in increased home value.
Tax considerations can be very important for people to address as they negotiate property division matters in a high-asset California divorce. Learning more about capital gains taxes and other financial complications can help people optimize the outcome of the property division process.