For sales after a divorce, if those two-year ownership-and-use tests are met, you and your
ex-spouse can each exclude up to $250,000 of gain on your individual returns. Sales after a
divorce can qualify for a reduced exclusion if the two-year tests have not been met. The
amount of the reduced exclusion depends on the portion of the two-year period the home
was owned and used. If, for example, it was one year instead of two, you can each exclude
$125,000 of gain.
What happens if you receive the house in the divorce settlement and sell it several years
later? Then, you can exclude a maximum $250,000 gain. The time your spouse owned the
home is added to your period of ownership for purposes of the two-year test. See IRS
Publication 523.
Property Tax Deduction/Credit
After your divorce, if you both maintain ownership of the property, your ownership is now
50/50.* On your tax return, you can only claim 50% of the property taxes due and paid on
the home as your property tax deduction. Alternatively, you can claim the $50 property tax
credit if that is more beneficial.
If the divorce/separation is not finalized and you choose to file the return as married, filing
separately, you, can only claim 50% of the property taxes due and paid ($7,500 if the total
paid exceeds $15,000). If you claim the property tax credit, you are only entitled to $25 (half
of the credit).
Note: If you and your spouse are not the sole owners of the property, you must take the
percentage of what you, the married couple, own and divide the amount in half to come up
with the correct property tax figure to report.
Part-year residents, see NJ-1040 Instructions for prorating instructions.
*For exceptions, see Homeownership.
Tax Withholding and Estimated Tax Payments
When you become divorced or separated, you will usually have to file a new NJ-W-4 form
with your employer to claim your proper withholding allowances. You also can file this form
to increase New Jersey withholdings, in lieu of estimated tax payments, if you receive
alimony payments.
If making estimated payments, be sure to make all payments under the primary (your) Social
Security number. If payments or credits that belong to you exist under your ex-spouse’s
Social Security number, be sure to claim your share on your New Jersey tax return and
include a separate statement of explanation in writing. We may require proof of payment in
order to have the payment(s) properly applied. Contact us with any questions.