Filing Taxes After Divorce: Tips for Homeowners

Andi • October 20, 2020

Some divorcing homeowners end up with unanticipated tax bills when they sell their home. Find out how you can avoid being one of them.

If you’re getting divorced, your home may be the biggest asset you’ll have to divide with your soon-to-be ex. As you decide whether to sell it and split the proceeds or let one spouse live there until the last kid launches, remember there’s sometimes a third party involved in your home sale transaction: Uncle Sam.

Keeping, selling, or continuing to share your home can each create different federal tax tabs for you and your ex spouse. Here’s a look at the tax consequences for six of the most common situations divorcing couples face.

 

1. One of You Stays in the House Until the Kids Grow Up; Then You Sell It

If you’re the one who moves out and agrees to hold off on selling the house until the kids are grown, you can end up with a whopping tax bill years later. That’s because the tax law provision that lets you avoid tax on home sale profits (or in tax speak, capital gains) typically only applies if you’ve both owned and lived in the house for two of the past five years.

Unless the kids are older and will be out of the house soon, the spouse who moves out typically won’t meet that two-year test.

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Luckily, there’s a way to avoid this problem: If the divorcing spouses can agree that one of them will be granted use of the property under a divorce or separation instrument, the spouse who leaves can still consider the property as his or her main home under the tax rules as long as the former spouse is living there. (You’ll need the supporting documentation — the decree — to prove this with the IRS.)

When the house is finally sold, each former spouse can avoid paying tax on up to $250,000 of profit from the sale. This is the same beneficial tax treatment they would have received had the divorce never happened.

 

2. One of You Buys Out the Other’s Share of the House Now

Tax changes for 2019 change the landscape for homeowners.

When you want to keep the house but lose the spouse, a buyout can work for both of you. In a buyout, you buy your spouse’s share of the house.

You don’t have to pay exactly half the value of the house; it can be any amount that works for you both given other assets you’re dividing. To decide the current value of your home, ask a REALTOR® to do a broker’s price opinion for you.

Typically, the spouse who stays refinances the current mortgage, but that doesn’t have to happen.

Generally, you don’t have to pay taxes on any gain or loss you have from the buyout. That’s true even if the house is just one part of the bigger plan to divvy up your assets and debts — for example, if you get the house because you agreed to give your ex-spouse cash or to pay off debt you both owe.

Warning for spouses who are moving out: Be sure the mortgage really was paid off. Otherwise, you could still be liable for paying it. Call or write your lender, and ask them to send a copy of the mortgage lien release to your new address. That’ll come in handy in the unlikely event that the mortgage continues to show up on your credit report and you need to prove it was paid off.

 

3. You Sell and Both Move Out

Some couples opt for a clean break from each other and from the home they shared. They sell the home and split the profit based on their divorce agreement.

If you sell a home you own jointly with your spouse, each of you can typically exclude up to $250,000 in home sale profits if you’re filing as single and $500,000 if you’re filing a joint return.  IRS Publication 523, Selling Your Home  has the details.

The IRS fine print on the exclusion requires that:

  • The home was your main (principal) residence.
  • You lived in and owned the home for at least two of the past five years.
  • You have not already used the exclusion during the past two years.

Spouses who haven’t owned and lived in the home for periods totaling two of the past five years (because of a job transfer or other unforeseen circumstance) might be eligible for a partial exclusion of the gain. You’ll find more information on those in Publication 523.

 

4. You Continue to Share the House

Some couples who share custody of their children want to avoid having the kids shuffle between the parents’ two homes. The kids stay in the original house and the parents take turns living with kids some weeks and living in a second home or rental during the other weeks.

The tax repercussions depend on whether you still consider the main home to be your principal residence and act accordingly. If, for example, you still get your mail there and keep it as your address for your driver’s license, it would likely still be counted as your home for tax purposes.

 

5. You Have a Vacation or Second Home to Divide

You don’t get that lovely capital gains exclusion when you sell a vacation home, so you’ll likely owe tax if you make a profit by selling a vacation home due to divorce.

The capital gains tax rate varies based on your income and filing status. Most people pay 15% in capital gains taxes on their vacation home sale profits. Lower-income sellers might pay no capital gains taxes, while those with a taxable incomes above $425,801 (for singles, the joint return threshold is $479,001) would pay 20% (and as much as 23.8%, if the 3.8% surtax on net investment income is included).

If you don’t sell and instead get your spouse’s share of your vacation home, you won’t have to pay taxes on the transfer as long as it’s part of your original or modified divorce or separation agreement.

Maybe you can continue to share your vacation home with your ex spouse and work out a written usage agreement as part of your divorce. You could each use the home 26 weeks of the year, for example.

 

6. You Own Rental Properties

In general, if you give or receive a rental property as part of your divorce agreement, you won’t owe income taxes because of that transfer. But the spouse who sells the property in the future might owe tax on the recaptured depreciation that you both took in the past.

Depreciation is an annual allowance real estate investors get for the wear and tear, deterioration, or obsolescence of a property. When investors sell a property, they owe taxes on the depreciation they deducted in prior years.

Ask your accountant how the depreciation you both claimed might be recaptured and whether there are ways to avoid paying tax on recaptured depreciation.

For more information about investment property transfers in divorces see  IRS Publication 504.

 

Three Caveats

There are three important exceptions to the six situations for divorcing homeowners outlined above:

  1. They don’t apply if your spouse is a nonresident alien.
  2. Properties held in trust follow a different set of tax rules outlined in Publication 504.
  3. Property you got in a divorce agreement that happened before July 19, 1984, falls under a different set of IRS rules outlined in Publication 504.

 

One-Off Property Situations for Divorcing Couples

Although most people will find themselves in one of the six situations discussed above, other home-related tax complications can arise from divorce, especially if you continue to have a joint mortgage on a home that only one of you continues to own and/or live in. Here’s how the taxes play out for some of these one-off situations:

You used the first-time homebuyer tax credit.  

Whichever spouse keeps the house is responsible for potentially repaying the first-time homebuyer tax credit if relevant. File Form 5405 to let the IRS know you don’t own the house anymore because of your divorce.

You pay the mortgage but don’t own the house.

Sorry, you can’t deduct the mortgage interest unless you own or co-own the home. 

You don’t own the home and your ex pays the mortgage.

Sorry, you can’t deduct the mortgage interest unless you own or co-own the home and pay all or part of the interest. 

You own the home but your ex pays the mortgage.

You report the mortgage payment on your tax return as alimony income, and then you get to deduct the mortgage interest payment on Schedule A of Form 1040 if you itemize. You have to be legally obligated to pay the mortgage to be able to take the mortgage interest deduction. 

If your lender sends your spouse (instead of you) Form 1098 (the form that proves to the IRS that interest payments were made), put a statement in with your tax return telling the IRS:

  • You own or co-own the house
  • Who the 1098 went to
  • Where the 1098 got mailed

You both own the home and you both pay the mortgage.

If both spouses own the house and contribute to the mortgage payment but only one of you lives in the house, you each deduct the mortgage interest you pay. To take the mortgage interest deduction, you have to own or co-own the home and be legally obligated to pay the mortgage. Each of you should include a statement with your respective returns, noting that you pay a share of the total interest shown on Form 1098.

HOUSELOGIC

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DONA DEZUBE

Dona DeZubehas been writing about real estate for more than two decades. She lives in a suburban Baltimore Midcentury modest home on a 3-acre lot shared with possums, raccoons, foxes, a herd of deer, and her blue-tick hound.  Follow Dona on Google+.

Top Negotiation Tips for Buyers in a More Balanced Bellingham Market

By Andi Dyer • November 25, 2025
The Bellingham real estate market in 2025 has found a steadier rhythm. It’s more balanced, less frenzied, and far friendlier to buyers who come prepared. After several years of bidding wars and lightning-fast decisions, inventory has increased and prices have leveled, creating room for strategy and nuance again. That’s where a thoughtful negotiation plan makes all the difference. Understand the Current Market Landscape Buyers today have more leverage than they’ve had in years. With homes spending longer on the market and sellers adjusting expectations, understanding current pricing trends and comparable sales is key. I guide my clients through real-time Whatcom County data — reviewing price per square foot, recent closings in their preferred neighborhoods, and seasonal patterns — so every offer is rooted in fact, not emotion. Knowing what homes are actually selling for helps buyers negotiate confidently without overpaying. Leverage Increased Inventory With more listings available, buyers finally have room to slow down and make informed choices. Take the time to conduct thorough inspections, ask questions, and request repairs or credits when they’re justified. Still, timing matters. Desirable homes can move quickly, even in a calmer market. Having a pre-approval letter ready and showing flexibility with contingencies can set you apart. Sellers appreciate serious, prepared buyers who make the process smoother and more predictable. When I negotiate for clients, I focus on solutions, not standoffs — framing each request as a way for both sides to move forward comfortably. Craft Strategic, Seller-Friendly Offers Strong offers in a balanced market are built on precision, not pressure. A winning offer often combines fair pricing, flexibility, and professionalism. Smart buyers should: Land near fair market value to attract attention without sparking a bidding war. Use escalation clauses only when true competition exists. Match the seller’s preferred timeline for closing or possession. Limit or waive contingencies only when fully confident in the home’s condition. Small touches matter. Adjusting possession dates, offering to cover a minor fee, or writing a sincere personal note can make your offer stand out — without adding cost. Partner With Skilled, Local Negotiators Negotiation in Bellingham isn’t just about price; it’s about relationships. Local insight matters — from understanding micro-trends in neighborhoods like Fairhaven, Sunnyland, or Ferndale, to reading seller motivations and knowing how individual agents operate. My background in contract strategy and community leadership helps me structure offers that feel collaborative and professional — the kind that make sellers comfortable saying yes. The Bottom Line In Bellingham’s 2025 market, the best advantage for buyers comes from preparation, patience, and partnership. Clear communication, realistic expectations, and data-backed strategy turn negotiation from a guessing game into a confident, collaborative process. This new, more balanced market rewards buyers who understand timing, value, and the human side of real estate — securing the right home at the right price without the chaos of years past. Andi Dyer, REALTOR® RE/MAX Whatcom County 📞 Call: 360.734.6479 🌐 AndiDyer.com/schedule Expert Guidance to Buy, Invest, and Sell in Bellingham and Whatcom County Frequently Asked Questions 1. Is 2025 a good year to buy a home in Bellingham? Yes. The market is more balanced, giving buyers more negotiating power and time to make informed decisions without constant bidding wars. 2. Are home prices dropping in Bellingham? Prices have leveled slightly but remain steady. The market has transitioned from rapid growth to sustainable stability. 3. How long are homes staying on the market now? Most homes are spending longer on the market than in previous years, typically between 30 and 45 days, depending on price and condition. 4. What can buyers negotiate in 2025? Repairs, closing costs, or flexible timelines are common negotiation points. Sellers are often more open to conversation than they were in past years. 5. Why work with a local REALTOR®? Local agents understand neighborhood nuances, market trends, and the personalities behind listings — insight that can make or break a negotiation.

Why Are More Seattle Buyers Choosing Bellingham Right Now?

By Andi Dyer • November 17, 2025
More Seattle buyers are choosing Bellingham right now primarily because of affordability, lifestyle, and the flexibility of remote work. With Seattle’s median home price around $766,000 in 2025, many buyers see Bellingham’s median price near $625,000 as a major opportunity to get more home for their money, often with larger lots, quieter streets, and the same Pacific Northwest charm. Bellingham offers the best of both worlds: a welcoming, small-town atmosphere paired with urban conveniences like a vibrant downtown, strong local arts, and steady employment sectors in healthcare, higher education, and technology. That mix helps sustain a healthy economy and keeps the area appealing for long-term living. Remote Work Opens the Door The ongoing rise of remote and hybrid work has changed how people think about “location.” Many Seattle-area professionals now realize they can keep their jobs and stay in Washington while escaping the high costs, traffic, and stress of city living. Bellingham makes that trade easy. It’s close enough to Seattle for visits or meetings but far enough away to enjoy a slower pace and a stronger connection to nature. Between Mount Baker, the San Juan Islands, and endless hiking and biking trails, it’s easy to see why people looking for balance are heading north. A Balanced and Competitive Market Nearly one in four Seattle-area buyers are exploring moves outside the metro area, and Bellingham is near the top of that list. The local market remains active but is far more balanced than Seattle’s, giving buyers more time and flexibility to find the right property. While desirable homes still attract competition, bidding wars are less intense, and inventory levels have improved. This creates a healthier environment for both buyers and sellers — a market where thoughtful preparation and realistic pricing matter more than speed. The Appeal Is Clear Seattle buyers are drawn to Bellingham because it delivers more value, space, and lifestyle without sacrificing access to the city’s cultural and professional connections. It’s affordable enough to feel like a smart investment, beautiful enough to feel like an escape, and connected enough to make the move practical. For many, it’s not about leaving Seattle — it’s about redefining what home looks like in the Pacific Northwest. Andi Dyer, REALTOR® RE/MAX Whatcom County 📞 Call: 360.734.6479 🌐 AndiDyer.com/schedule Expert Guidance to Buy, Invest, and Sell in Bellingham and Whatcom County Frequently Asked Questions  1. Is Bellingham more affordable than Seattle? Yes. With a median home price around $625,000 compared to Seattle’s $766,000, Bellingham offers noticeably more space and value for the money. 2. How far is Bellingham from Seattle? Bellingham is roughly 90 miles north of Seattle, about an hour and a half by car, making it close enough for business trips, family visits, or weekend plans. 3. What types of jobs are common in Bellingham? Major employment sectors include healthcare, higher education, small business, tourism, and a growing tech and remote-work community. 4. Is Bellingham a good place for remote workers? Absolutely. The area offers reliable internet access, quiet workspaces, and the freedom to enjoy outdoor recreation before or after the workday. 5. What makes Bellingham attractive for Seattle buyers? Lower prices, natural beauty, and a relaxed lifestyle top the list, but staying within Washington while maintaining career flexibility makes it even more appealing.

My Favorite Podcasts

By Andi Dyer • November 17, 2025
What I’m Listening To This Month Between showings, coffee stops, and scenic drives around Whatcom County, I love a good podcast to keep me company. Here are a few that have caught my ear lately—equal parts inspiring, hilarious, and a little mysterious. 🎧 Taskmaster: The Podcast If you love British humor, this one’s a treat. Each episode dives into the wonderfully chaotic world of Taskmaster, where comedians face absurd challenges with equal parts brilliance and questionable judgment. 🌍 Women Who Travel This series celebrates the ways women explore the world—blending candid storytelling, cultural insight, and pure wanderlust. Perfect listening for travel lovers and daydreamers alike. 🐾 Trained to Kill: The Dog Trainer, the Heiress, and the Bodyguard A true crime story rooted in Anacortes, this gripping series unravels a tangled web of loyalty, manipulation, and danger—each episode more surprising than the last. Have a favorite podcast to recommend? I’d love to hear it, especially something that pairs well with a drive along Chuckanut or a stroll through Fairhaven.

How Increased Inventory Is Changing Whatcom County Real Estate in Late 2025

By Andi Dyer • November 14, 2025
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Slow Market or Opportunity? What Sellers in Whatcom County Should Know This Winter

By Andi Dyer • November 13, 2025
Despite the perception of a “slow market,” winter 2025 in Whatcom County actually represents a real opportunity for sellers who adapt their approach strategically. After several years of rapid home price growth and extremely tight inventory, the market has entered a more balanced phase marked by higher inventory, steady buyer demand, and stable pricing across the region. Inventory Is Up — and So Is Competition Inventory has increased significantly over the past year. In Bellingham, active listings are up 41% year-over-year , with similar trends seen in Ferndale, Lynden, Blaine, and Birch Bay. This growth gives buyers more choices than they’ve had in years, but it also means sellers are competing for attention. Homes that stand out with professional staging, high-quality photos, and competitive pricing continue to sell quickly, even as the overall pace slows. Sellers who approach listing preparation thoughtfully are still seeing strong offers and solid closing timelines. Prices Remain Steady Home prices across Whatcom County have softened only slightly from their 2024 peaks but remain stable overall. The median home price currently hovers between $615,000 and $625,000 , with detached homes averaging around $620,000 . Average days on market have increased modestly, giving buyers a bit more breathing room — but that shift also highlights the importance of realistic pricing. Homes priced too aggressively tend to linger, while those aligned with current market data still attract steady interest. Ferndale continues to appeal to buyers seeking affordability and newer developments, while Bellingham holds its value thanks to its waterfront access, cultural amenities, and strong local economy. A Balanced Market Creates Strategic Openings With roughly 3.5 to 4 months of inventory , Whatcom County has reached a level of balance not seen in years. Buyers have more time to make decisions, but sellers who present their homes well and price strategically are still rewarded. This isn’t the frantic, multiple-offer market of 2021—but it’s also not a downturn. It’s a recalibration. Sellers who see it that way are the ones finding success. The Seller’s Advantage: Preparation and Precision Winter markets tend to filter out casual buyers. The ones shopping now are typically motivated—relocating, upsizing, or taking advantage of improved selection. That’s why preparation matters so much. Well-staged homes that photograph beautifully online and are priced in line with recent sales continue to capture attention. Sellers who invest a little time in presentation and flexibility in negotiation are often the ones walking away with strong results. The Bottom Line Winter 2025 in Whatcom County isn’t a “slow” market—it’s a smarter one. With rising inventory, stable pricing, and buyers who are still active but more deliberate, it’s a season where strategy counts more than speed. Sellers who adapt to these changes—by pricing realistically, presenting their homes thoughtfully, and staying patient—can take advantage of this moment to move forward successfully. Andi Dyer, REALTOR® RE/MAX Whatcom County 📞 Call: 360.734.6479 🌐 AndiDyer.com/schedule Expert Guidance to Buy, Invest, and Sell in Bellingham and Whatcom County  Frequently Asked Questions 1. Is winter a bad time to sell a home in Whatcom County? Not at all. Serious buyers stay active through winter, and less overall competition can make your home stand out. 2. Are home prices dropping in Whatcom County? Prices have softened slightly from their 2024 highs but remain steady. The market is balanced, not declining. 3. How long are homes taking to sell? Most homes are taking slightly longer—typically 30 to 45 days—but well-prepared listings can still go pending within two to three weeks. 4. Should sellers wait until spring 2026? Waiting isn’t always better. Listing now can mean less competition and a pool of serious buyers who want to move before spring. 5. What’s the key to selling successfully right now? Realistic pricing, strong presentation, and working with a REALTOR® who understands the shifting local market dynamics.

From Your Porch to Their Pantry – Bellingham Food Drive

By Andi Dyer • November 11, 2025
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My Swedish Glogg Recipe

By Andi Dyer • November 10, 2025
To make my traditional Swedish Glögg (mulled wine), you gently heat red wine and spirits with a blend of spices, orange zest, and sugar. The mixture is then strained and served warm with blanched almonds and raisins. Ingredients 1 bottle (750ml) dry red wine (e.g., Cabernet Sauvignon, Pinot Noir, or a Cotes du Rhone) 1/2 to 1 cup sugar (caster or granulated, to taste) 1/2 to 1 cup vodka, aquavit, bourbon, or brandy (optional, for a stronger drink) 1 orange (peel in wide strips, avoiding the white pith) 1 cinnamon stick 10 whole cloves 10 cardamom pods, lightly crushed 3-4 slices fresh ginger, peeled (optional) 1/2 cup raisins (plus more for serving) 1/2 cup blanched slivered almonds (for serving) Instructions Combine Ingredients: In a large saucepan, combine the red wine, sugar, orange zest strips, cinnamon stick, cloves, crushed cardamom pods, and ginger slices (if using). Add the raisins and almonds into the mixture or save them for serving. Heat Gently Warm the mixture over medium-low heat. Stir occasionally to dissolve the sugar completely. It is crucial that the mixture is heated gently and never allowed to boil, or the alcohol will cook off and the flavor will be spoiled. The temperature should stay below 175°F (77°C). This process typically takes 10-15 minutes. Steep Remove the pot from the heat, cover it with a lid, and let the spices infuse the wine. This can be done for at least 1 hour, or ideally, the mixture can be left to steep overnight in a cool place for a more intense flavor. Strain and Reheat Strain the glögg through a fine-mesh strainer to remove all the spices and orange peel. Discard the spices. Gently reheat the liquid over low heat until hot but not boiling. Add Spirit (Optional): Just before serving, stir in the vodka, aquavit, or other spirit of your choice, if using. Serve Ladle the warm glögg into small heatproof glasses or mugs. Garnish each serving with a few additional blanched almonds and raisins, which are traditionally eaten with a small spoon as you drink.

Winter Recipe: Pomegranate & Pear Green Salad with Ginger Dressing

By Andi Dyer • November 4, 2025
Bring a burst of color (and flavor!) to your table with this crisp, seasonal salad. Juicy pears, tart pomegranate seeds, and a lively ginger dressing make it a refreshing side for any fall or holiday meal.  🍁 Click below to get the recipe and add a little sparkle to your menu!

How One Bellingham Homeowner Dodged Thousands in Property Taxes (and How You Can Too)

By Andi Dyer • November 2, 2025
Got a surprise property tax bill? You may be able to appeal—but don’t wait. One homeowner called me two days before the deadline, and we built a successful appeal together. Check your 2025 valuation and email me “Tax Check” for a free review. It started with a Saturday night phone call. Frantic, a local homeowner reached out just days before the property tax appeal deadline. Their 2024 assessment had landed with a thud, forecasting a tax bill that felt wildly out of line with reality. The deadline to appeal? Monday, October 27th. Cue the scramble. That evening, too stormy to drive, I hunkered down at home and dove into the numbers. Something wasn’t right. The new valuation didn't match the trajectory of their neighborhood market. The math simply didn’t check out. Sunday morning, we got to work. I drove out to their property, and together we built a bulletproof appeal. We reviewed sales data, took updated photos, and pulled relevant comparables to submit with their documentation. The appeal package was ready to go by Monday morning. Crisis averted. Here’s what every Whatcom County homeowner should know: Your property valuation notice typically arrives in September. You have 30 days from the date on the notice to file an appeal. If the number looks off, don’t shrug and hope it’s close enough. You can challenge it—and often should, especially in fluctuating markets like Bellingham, Ferndale, and beyond. The key takeaway? Don’t wait until the last minute. It pays to be proactive. Assessments aren’t always accurate, and appealing your property valuation could save you thousands. If your 2025 valuation doesn’t reflect the true market value of your home, you have options—and you don’t have to figure them out alone. Let’s make sure you’re not overpaying. If your new valuation feels too high, DM me "Tax Check" and I’ll give you a free property value review. We’ll go over the numbers together and see if an appeal makes sense. Still have questions? Let’s meet for coffee and talk it through. I’m always happy to help you navigate the less-fun-but-super-important parts of homeownership.

Fall Recipe: Vegetable Lasagna

By Andi Dyer • October 29, 2025
🍂 This hearty vegetable lasagna is the perfect fall meal—warm, colorful, and packed with seasonal goodness. It’s a crowd-pleaser that feels just as good on a weeknight as it does at a fall gathering.
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