Taxes and timing

Sell before or after the decree? The tax answer.

If the gain on the house is under $250,000 it rarely matters. If it is more, the date on the decree can be worth tens of thousands of dollars. Here is the federal rule, the two divorce-specific breaks, and the Colorado piece.

Sell the house Gray divorce and long-held homes

Call or text 303-955-4220. A live person answers. Not a robot, not a phone tree.

The exclusion

$250,000 single, $500,000 joint

Owned and lived in the home 2 of the last 5 years. Both spouses must meet the use test for the $500,000.

Divorce break 1

Your ex’s use counts as yours

If the decree lets your ex live there, the IRS treats that as your use too.

Divorce break 2

Transfers between spouses are tax-free

No gain when the house moves to your ex in the divorce. But the basis carries over.

Colorado

Flat 4.4 percent on what is left

Colorado taxes any gain above the exclusion as ordinary income.

The short answer

Married couples filing jointly can exclude up to $500,000 of gain on a main home they owned and lived in for two of the last five years. A single filer can exclude $250,000. A sale that closes after the decree is two single sellers, each with $250,000 on their share. So when the gain is over $250,000, closing before the decree and filing jointly for that year is usually worth real money. This is general information, not tax advice; a CPA should check your numbers.

A worked example on a long-held Denver home

Bought in 2004 for $280,000. Sells for $649,500 with about $38,000 of selling costs. Gain about $331,000.

Close before the decree, joint returnFully excluded under $500,000. Tax: $0.

Close after the decree, two singlesEach spouse has about $165,500 of gain on their half against a $250,000 exclusion. Also $0, because each half is under $250,000.

Same house, one spouse keeps it and sells alone laterThat spouse inherits the original $280,000 basis (IRC 1041 carryover) and the whole $331,000 gain, with one $250,000 exclusion. About $81,000 taxable: roughly $12,200 federal at 15 percent plus about $3,600 Colorado, near $15,800.

The lessonThe exclusion math depends on who owns what share at closing and whether the return is joint. Run it both ways before the decree sets the date.

The two divorce rules in IRS Publication 523

Use test. “If you were separated or divorced prior to the sale of the home, you can treat the home as your residence if you are a sole or joint owner, and your spouse or former spouse is allowed to live in the home under a divorce or separation instrument and uses the home as his or her main home.” That is what protects the spouse who moved out in a deferred sale.
Ownership test. If you receive the home from your spouse in the divorce, you can count the time your spouse owned it as time you owned it.
Partial exclusion. If you sell before meeting the two-year test, divorce or legal separation is a listed “unforeseeable event” that allows a prorated exclusion.
Transfers to a spouse. Moving the house to your ex as part of the settlement is not a sale; there is no gain or loss. The ex takes your adjusted basis.

Rates on anything above the exclusion (tax year 2026)

0 percentTaxable income up to $49,450 single, $98,900 joint, $66,200 head of household.

15 percentUp to $545,500 single, $613,700 joint.

20 percentAbove that, plus a 3.8 percent net investment income tax above $200,000 single / $250,000 joint of modified AGI.

ColoradoFlat 4.40 percent on taxable gain. The old Colorado capital-gain subtraction was repealed for most assets after 2021; a narrow subtraction survives for Colorado property bought between May 1994 and June 2009 and held five years, capped at $100,000.

Questions people ask on this page

Do I owe tax when my spouse buys me out?

No. A transfer between spouses incident to divorce (within one year of the decree, or up to six years if the agreement requires it) is not a taxable event. Your ex takes over your basis.

We sold during the divorce and the money is in escrow. When is it taxed?

In the year the sale closed, based on ownership and filing status that year, regardless of when the escrow releases. Ask a CPA how the proceeds are reported if the decree allocates them unevenly.

Can I claim head of household the year we divorce?

If you are unmarried on December 31, paid more than half the cost of keeping up a home, and a qualifying child lived with you more than half the year. Head-of-household brackets are wider than single.

Does the senior property-tax exemption survive the divorce?

Only for the qualifying senior who stays in the house. The spouse who moves starts a new 10-year clock, unless Colorado’s temporary 2025-2026 portability classification applies. Gray divorce and the house.

Not tax advice. Federal figures are from IRS Publication 523, Publication 504 and Revenue Procedure 2025-32; the Colorado rate is the Department of Revenue’s flat rate for 2026. Thresholds change every year. Confirm your numbers with a CPA before you set a closing date.

Where to go next

Plain-language education, not advice. Divorce Decisions is published by The Kenna Real Estate Group at Keller Williams DTC, a real estate team. Nothing here is legal, tax, lending or financial advice, and reading it does not create any professional relationship. Colorado law and lender rules change; confirm anything that matters to your case with a licensed Colorado attorney, a tax professional, and your lender. See our full disclaimer.

Call your Colorado divorce agent

Questions about the house, the deed or the decree?

Call us today to talk through your situation and how we can help. A live person answers. Not a robot, not a phone tree.

Call today 303-955-4220 Download the free divorce-home guide

Ask us about the house

Tell us where you are in the process and what you are trying to figure out. We will answer honestly, including when the honest answer is to wait. Free, confidential, and nobody sells you anything.

Call or text 303-955-4220

A live person answers. Not a robot, not a phone tree. Prefer email? homes@kennarealestate.com