There are more than 1,000 laws that describe the financial and legal advantages married couples possess. You and your spouse can enjoy privileges for income taxes, retirement accounts, social security and even real estate. This causes some people to plan carefully before deciding to divorce in Colorado.
One of the most significant tax breaks for spouses is the capital gains tax which is a $500,000 exemption on the sale of your home. This is double the amount that single individuals can exclude on their taxes. If you’re getting a divorce, here is some important tax information you should know.
What is a capital gains tax break?
In general, a capital gains tax is applied to the sale of capital investment. This includes real estate, which is subject to the capital gains tax once the property is sold. Homeowners have a unique advantage — they are able to exclude capital gains of up to $25,000. In a divorce, the money from the sale of this asset should be divided fairly between the two spouses. This often works in favor of the spouse whose name is on the mortgage. Couples who are both listed on the mortgage receive a capital gain of up to $500,000.
How to qualify for a capital gains tax break
There are some conditions that come with the capital gains tax break, and it is important to be aware of these terms before filing for divorce. Couples must pass the use test, which means the home must be the seller’s main residence for at least two of the five years leading up to the sale date. It is also necessary for married couples to pass the ownership tests, which means that the couple must be the owner of the home for at least two of the past five years to receive the capital gains tax break.
Contact an experienced family law attorney to get more information about capital gains in divorce. Working with a lawyer could also help expedite divorce proceedings to make the process as smooth as possible.