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Sandi Hargrove, SkyHawks
Sandi Hargrove, SkyHawks, Master Tax Advisor, Enrolled Agent
Category: Tax
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Experience:  I am a Master Tax Advisor and Enrolled Agent. I have 40 years experience. Trucking specialist.
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Is the payoff of the 1st and 2nd mortgage deducted from capital

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Is the payoff of the 1st and 2nd mortgage deducted from capital "gain" before tax is figured when a house is sold?

I'm divorcing and we will have a big gain (500K) on our home. Does my soon to be ex have to remain on the title to be able to divvy up the capital gains at 250K ea to avoid having to pay the taxes that if he transfers to me I would owe, seeing as I can only deduct $250K?

The owner listed on the title of the house is entitled to take advantage of the exclusion amount (if they otherwise qualify).


You will file seperate returns rather than jointly if you are not married on 12/31/09. Joint filed return is eligible for up to 500,000 exclusion. Married Filing Seperate, Single or Head of Household filing status will make each of you only eligible for 250,000. So, if title is transferred prior to the sale, you may be subject to capital gains tax on the remaining 250,000 after your 250,000 exclusion.


The mortgage payoff on any mortgages is not involved in determination of capital gains. You will use the original purchase price (I assume you did not inherit the home nor receive it as a gift) increased by any capital improvements (not just repairs) and then reduced by the expenses of the sale. There may be other adjustments to be made if you claimed a casualty loss, or other changes to the property (easement, partial sale, etc).


List the sale on Schedule D if form 1099S is issued even if you do qualify for a full exclusion.

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