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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28081
Experience:  Taxes, Immigration, Labor Relations
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Customer Question

I had a complicated divorce settlement in 1991, and had deferred capital gains of 350K. At that time I also had many court costs to preserve that money and ended up with 80K that I used to buy a house for 285K. Now I plan to sell that house for 800K and need to know how to determine my tax basis in order to determine capital gains taxes.

I also need to know the wording about eligibility to qualify for the married couple 500K exemption, such as the length of time one has to be married before or after the sale to qualify.

Is it still necessary to go back to those previous house sales?
Submitted: 4 years ago.
Category: Tax
Expert:  Lev replied 4 years ago.


Hi and welcome to Just Answer!
Your basis - is your purchase price. If the property was transferred to you from your spouse as part of your divorce settlement - that doesn't affect your basis.
If the property was purchased for $285k - that is your basis.


The basis should be adjusted by purchase expenses, improvement expenses, etc.
For instance - if you replaced the roof - these are improvement expenses and are added to the basis.
You will also deduct your sale expenses - for instance - Realtor fees.
If you are single - you may only exclude $250,000 from taxable gain. The rest will be taxed as long term capital gain - reduced 15% tax rate will be used.


See example how to report the sale in IRS publication 523 - - starting from page 19.
You may only claim $500K exclusion - if you are married and if you are filing a joint tax return with your spouse.
If you do not file a joint tax return - you may only claim $250k exclusion.
Let me know if you need any help.

JACUSTOMER-4qc85bf0- :

I had a house previously that was sold for 700K in 1991 when we divorced; my share was 350K. I had extensive court costs preserving that $ and ended up with 80K that I put down on this current hse that I am preparing to sell. I understand about the costs I may deduct on this current hse, but the Adjusted basis--as a result of the earlier deferred gains in 1991-- is what I need to know in order to determine any present capital gains on the sale of my current hse.


There is no need to use the adjusted basis--as a result of the earlier deferred gains in 1991 - the tax law was changed in 1997 - and you will only use your purchase price.


You should not worry about the sale transaction back in 1991.

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