Divorce: Changing Address Causes Loss of Capital Gains Exemption
1) What does the law say about the exemption of capital gains?
2) The impact of divorce on the address and exemption
3) Practical example
4) Conditions for maintaining the exemption from capital gains
5) What to take into account in case of divorce
What does the law say about the exemption of capital gains?
The exemption of capital gains on the sale of a house is reserved for very specific situations. To benefit from this regime, the property sold must have been the taxpayer's own and permanent residence for at least the 12 months prior to the sale. This condition is proven by the coincidence between the tax address registered with the Tax Office and the location of the property. In other words, it is not enough to be an owner or continue to pay the bank loan; It is essential that the tax address corresponds to the house you intend to sell.
The impact of divorce on address and exemption
When a divorce occurs, it is common for one of the members of the couple to remain in the house with the children, while the other seeks a new residence and changes their tax address. Although, in many cases, both continue to share expenses related to the property, such as housing credit, insurance and taxes, the change of tax address has direct implications on access to the capital gains exemption.
If the ex-spouse who has moved out of the house changes his or her tax address to another address, he or she loses the right to capital gains exemption when he or she decides to sell his or her share of the property. This happens even if you continue to contribute to the payment of the loan or other expenses associated with the house. The Tax Authority considers that, for tax purposes, it is no longer the taxpayer's own and permanent residence, so the gains obtained from the sale are now subject to IRS taxation.
Practical example
Imagine a couple who bought a house together and, after the divorce, one of the members moves to another property and changes their tax address. Years later, he decides to sell his share of the old house to buy a new home. Although he continued to pay half of the loan, he will not be able to benefit from the capital gains exemption, as his tax address no longer coincides with the property sold in the 12 months prior to the transaction.
Conditions for maintaining the exemption of capital gains
To ensure the right to capital gains exemption after divorce, it is essential to:
- Keep the tax address registered on the house to be sold until the date of the transaction;
- Prove that the property was the own and permanent residence in the 12 months prior to the sale;
- Reinvest the sale value (deducted from the loan) in the purchase of a new and permanent home, within the legal term.
If any of these requirements are not met, the Tax Authority will tax the capital gains obtained, regardless of the family context or the financial contributions maintained over the years.
What to take into account in case of divorce
At the time of divorce and division of property, it is essential to consider the tax impact of the change of address. The decision to change the tax address should be considered, especially if there is an intention to sell the property in the future and benefit from the capital gains exemption. It is recommended to carefully analyze the options and, if possible, plan the sale and reinvestment process in order to comply with all legal requirements.
The link between divorce, tax address and exemption from capital gains is a topic of great importance for those who are going through a separation. A hasty change of address can translate into a significant loss of tax benefits. Thus, those who find themselves in this situation must be aware of the rules and plan each step, ensuring that they do not lose acquired rights due to lack of knowledge or lack of information. Planning and information are the best tools to avoid unpleasant surprises at the time of selling the property after divorce.
SOURCE: SUPERCASA
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