A home’s capital gain after a divorce

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Q. If I paid my ex-spouse half of the net value of my home during a divorce, and I kept the home, how is this factored in when I calculate my real estate gain on this home? What happens to the exit tax?
— Selling

A. Here’s what you need to know. 

First, the taxable capital gain on the sale of a primary home for New Jersey purposes is the same as the federal rules, said Cynthia Fusillo, a certified public accountant with Lassus Wherley in New Providence.

Under federal and state rules, you can deduct up to $250,000 of capital gain on the sale of a principal residence if you file as a single person. Married filers can deduct up to $500,000 of gain.

When you eventually sell your main home, you’ll have to calculate your basis in the home in order to determine any capital gain, Fusillo said.

“The IRS says that there is no recognized gain or loss on the transfer of property between spouses, or former spouses if such transfers are incident to divorce,” she said. “With no gain or loss recognized at the time of transfer, the basis of the property remains the same as it was before the transfer.”

You do get to add capital improvements you made to the home to your basis, she said, and you can deduct items such as realtors’ commissions, among others, from the sale price.

Then there’s the exit tax.

It’s not actually a separate tax.

Instead, it’s a means to collect in advance taxes that may be due on the sale of real estate in New Jersey that’s owned by non-residents, Fusillo said. The funds are collected at the closing so the state can make sure people leaving the state actually pay what they owe – just in case the people choose not to file their final tax returns with the state. But by filing a non-resident return after you leave, if you’re owed a refund, you’ll get it.

You can learn more about the exit tax here.

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