Should You Keep Your House After Divorce?February 8, 2012 • By Ginita Wall, CPA, CFP®
My husband moved out of the house six months ago. I don’t think I can afford to buy him out, and so I am considering moving into the rental condo we have, which means we’d sell our house. But my husband thinks that I should stay in the house until our son leaves for college in four years, and he’s willing to delay selling the house until then. What do you think is the best option for me?
You and your husband may each to exclude up to $250,000 of gain when you sell your home, if you have both lived in it for two of the five years before sale. If your husband has been gone from the house for more than three years when it is sold, there is a way you can both still qualify for the $250,000 exclusion. Your old home will be considered to be your husband’s residence if you have been occupying it prior to sale under the terms of a divorce or separation agreement or court order. This new rule opens the door to joint ownership of homes for extended period after divorce.
Here are some things to consider as you make your decision. Will you be comfortable continuing to live in a house he owns? If the house needs a new roof or plumbing, who will pay for it? If you make the monthly house payment, will you get credit for the loan reduction over the next four years, or will the proceeds from sale be split equally, giving him half the benefit?
If you decide to move into the rental condo and sell the house, it is possible that you can exclude gains on the sale of both properties. Let your husband take title to the residence and sell it, while you move into the rental for at least two years, and then sell it. Each of you can exclude up to $250,000 of gain. (If any depreciation was claimed on the rental after May 6, 1997, you will have to pay tax at a 25% rate on that recaptured depreciation.)