21 Dec How does my divorce change taxes on this home sale?

Q. My husband and I originally purchased my home in 1980. After our divorce in 1992, the courts deemed that I could buy him out 10 years later for a set amount. My question is: if I were to now sell my house in 2023, at what point would my capital gains begin? Would the exemption be $500 from 1980 to 1992, or until 2002? At what point would the single status kick in? Would both shares of house value be considered back in 1992?
— Single

A. Thank you for your question.

When it comes to this kind of tax issue, you certainly want to get it right.

The gain on a personal residence is calculated on the difference between the selling price and the cost basis less the personal exclusion, said Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston.

In your case, the cost basis would be calculated by taking 50% of the purchase price and closing costs from when you bought it in 1980, adding 50% of any improvements that were made prior to your divorce, and adding the amount that you paid to your ex-husband to buy him out, plus any closing costs on the sale, Karu said.

“Since it is well past the 10-year window established by the court, the personal exemption on the sale of your personal residence would be as of the date of sale, which for a single individual is $250,000,” he said.

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This story was originally published on Dec. 21, 2023.

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