Buyout of Divorcing Spouse’s Interest in Marital Residence is Generally Not a Taxable Transfer

Husband and Wife own the marital residence (Home).

Home has appreciated in value since purchase, and Husband and Wife have positive equity in Home.

Husband and Wife are divorcing.

Wife wants to remain in the Home with the Children.

Husband would prefer to sell the Home and split the proceeds of sale.

Husband and Wife reach an amicable resolution.

Wife will buy out Husband’s interest in the Home, and Husband will transfer his interest in the Home to Wife.

Will Wife have a taxable capital gain?

Generally, no. Transfers between spouses in connection with a divorce generally do not give rise to taxable events.

In other words, no gain or loss is deemed to be taken. The buying spouse takes over or assumes the same tax basis that the couple previously had in the transferred property.

Read more in this [Fort Smith, AR] Times Record column: Key to Reducing Capital Gains Taxes.