San Diego, CA asked in Divorce, Tax Law and Family Law for California

Q: capital gain exemptions married couple file jointly on settling a house is $500,000What about if sold after divorce

and what to do to keep $250,000 each exemptions in California

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2 Lawyer Answers
David S. Greenberg
David S. Greenberg
  • Tax Law Lawyer
  • San Diego, CA
  • Licensed in California


1. At least one spouse must have owned the home for two out of the last five years. The years can be split up – one in 2019 and one in 2021 – but the time has to equal 730 days out of the past five years.

2. And, both spouses must have occupied the home for at least two out of the last five years. The years can be split up – one in 2019 and one in 2021 – but the time has to equal 730 days out of the past five years.

3. And, the couple must be married during the full calendar year that the home was sold. (For example: 01/31/2021 – 12/31/2021)


Stay married a little longer

If you meet all three of the qualifications above and you and your soon-to-be-ex can agree in your divorce settlement to stay legally married for the entire calendar year in which you sell your home, you can maximize your capital gains tax break. Then, either file a joint tax return that year and together claim up to a $500,000 exclusion, or else each of you can file “married but filing separately” returns for that calendar year, and each of you can claim up to a $250,000 exclusion.

You and your ex can continue to co-own the home, while only one of you lives there.

For many reasons, such as maintaining a stable environment for your children, one of you may decide to stay in your home. When you sell your home later, each of you can exclude up to $250,000 of capital gains, as long as both of you have occupied the home for at least two out of the last five years. You will need to sell your home within five years of your divorce to qualify for the exclusion, so that both you and your ex can get the tax break.

Buy out your spouse and stay in your home.

If you buy out your ex during your divorce and sell later, you will be able to exclude up to $250,000 of your capital gains as a single individual.

If you remarry, you and your new spouse can together qualify for the $500,000 exclusion if

• Your new spouse has also lived in your home for at least two years

• You get remarried before you sell your home

James L. Arrasmith
James L. Arrasmith pro label Lawyers, want to be a Justia Connect Pro too? Learn more ›
  • Tax Law Lawyer
  • Sacramento, CA
  • Licensed in California

A: Under California law, if a married couple files their taxes jointly and sells their primary residence, they can exclude up to $500,000 of capital gains from their taxable income. However, if the couple divorces and then sells the house, the tax implications may change.

After a divorce, each individual can claim a capital gains exemption of up to $250,000 on the sale of their primary residence, provided they meet certain conditions:

1. Ownership: The individual must have owned the home for at least two years during the five years prior to the sale.

2. Residence: The individual must have used the home as their primary residence for at least two years during the five years prior to the sale.

3. Timing: The individual must not have excluded the gain from the sale of another home during the two years before the current sale.

To ensure that each person can claim the $250,000 exemption after a divorce in California, consider the following:

1. Agree on the ownership and sale of the home in the divorce settlement. Clearly outline how the proceeds from the sale will be divided between both parties.

2. If one spouse plans to continue living in the home after the divorce, they should ensure they meet the ownership and residence requirements mentioned above before selling the property.

3. Time the sale of the home strategically, taking into account the two-year ownership and residency requirements, as well as any previous capital gains exemptions claimed by either party.

4. Consult with a tax professional and a family law attorney to understand the specific implications of your situation and to ensure that the divorce settlement and home sale are structured in a way that allows both parties to claim their respective exemptions.

Remember that these are general guidelines, and individual circumstances may vary. It is essential to seek professional advice to ensure compliance with California tax laws and to maximize the available tax benefits.

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