Tax Implications of Selling the Marital Home in Divorce
Selling your home during a divorce in Arizona can come with significant tax consequences, but many divorcing homeowners don’t realize how much they may owe—or how much they can save. Understanding capital gains tax exemptions, IRS rules, and Arizona-specific property tax laws can help you make informed decisions and maximize your proceeds. In this blog, we’ll go over the key tax considerations when selling your marital home.
Capital Gains Tax and Divorce: What You Need to Know
When you sell your home, the IRS may apply capital gains tax on the profit. Here’s how it works:
If you bought the home for $300,000 and sell it for $500,000, you have a $200,000 gain.
The IRS allows an exemption of up to $250,000 per person, or $500,000 for a married couple filing jointly.
What Happens If You Sell After the Divorce?
If you sell the home after the divorce is finalized, only the spouse who remains on the title can claim the exemption—potentially reducing the amount you can exclude from capital gains.
Qualifying for the Capital Gains Exclusion
To qualify for the $250,000 or $500,000 exclusion, you must meet certain conditions:
Primary Residence Requirement: You must have lived in the home for at least two of the last five years.
Ownership Requirement: At least one spouse must have owned the home for at least two years.
Joint Filing: To qualify for the $500,000 exemption, you must be married and file jointly before selling.
If one spouse moves out before the sale and the home is sold more than three years after they moved, they may lose their eligibility for the exclusion.
Arizona Property Tax Implications
Arizona has relatively low property tax rates, but your taxes could change if:
The property is reassessed after refinancing or a title transfer.
You move to a new property with a different tax rate.
Additionally, some Arizona counties provide homestead exemptions that could lower property taxes for qualifying homeowners.
How to Minimize Your Tax Burden
If you’re concerned about potential taxes, consider these strategies:
Sell while still legally married to claim the $500,000 exemption.
Structure payments in an installment sale to spread tax liability over multiple years.
Use tax deductions for selling costs, such as real estate commissions and home improvements made before the sale.
Final Thoughts – Avoid Costly Tax Mistakes
Understanding your tax liability before selling is key to keeping as much of your proceeds as possible. Before making a move, call, text, or email me today—let’s ensure you get the best possible financial outcome.