When going through the divorce process, taxes are probably the last thing on a person’s mind, but they should not be. Divorce, and all that it entails, can cause some serious income tax issues for Connecticut residents. Take selling the marital home, for example.
Some couples choose to sell their home right away, while others choose to continue living in the residence during or even after divorce. There is no right or wrong way to go about this. It all depends on what the former couple feels comfortable doing. When they eventually choose to sell their home, there may be questions about which party gets to reap the tax exclusion benefit.
As of Oct. 2018, a couple, or former couple, who files a joint tax return may exclude up to $500,000 of their home sale from their income tax return. If each party wishes to file a separate tax return, each may exclude up to $250,000. This exclusion allows each party to maintain the profit from the sale versus overpaying taxes.
There is a catch when it comes to utilizing the exclusion benefit. There is a residency requirement. For any person to exclude home sale profits on their taxes, they must have used the home as a primary residence for two out of the last five years. This may present a problem in divorce cases if one party moved out of the residence long before the home was sold. That individual may not reap this tax benefit.
It is safe to say that there is not a single Connecticut resident out there who wants to pay more in income tax or lose profits from a home sale. Those who have questions or concerns about their tax situations and how the selling of their home will affect them can turn to legal counsel for assistance. A family law attorney may offer some guidance to divorcing couples on this matter, but a tax law attorney will have the most up to date information on this topic.