Divorced: You Kept the Family Home

If you received the marital home in your divorce settlement, you inherited your ex's cost basis and now face a halved capital gains exclusion when you eventually sell.

Your new cost basis: When a home transfers between spouses incident to divorce, the receiving spouse takes over the original cost basis -- not the current market value. If you and your ex bought the house for $300,000 twenty years ago, that is still your basis, even if it is worth $800,000 now. Any improvements either of you made increase the basis.

The exclusion shrank: As a married couple, you could exclude up to $500,000 of gain on the sale of your home. As a single filer, the exclusion drops to $250,000. With the original basis carrying over, the gap between basis and sale price may exceed that $250,000 limit, creating a taxable gain that would not have existed if you sold while married.

Ownership and use test: To claim the $250,000 exclusion, you must have owned and used the home as your principal residence for at least two of the five years before the sale. Time your ex-spouse owned the home during the marriage counts toward your ownership period.

The tradeoff: Keeping the home feels like stability, but the combination of a carried-over basis and a halved exclusion can produce a surprise tax bill when you eventually sell. Run the numbers with a CPA before assuming you will sell tax-free.