Is A Divorce House Buyout a Taxable Event? Here’s What You Need to Know
Understand the Tax Rules, Avoid Surprises, and Make the Right Choice for Your Home During Divorce
Going Through a Divorce and Unsure What Happens to the House?
If you’re thinking about buying out your ex’s share - or they’re buying out yours - you might be asking:
“Will I have to pay tax on this?”
The short answer? In most cases, no. But it depends on how and when it’s done. Let’s break it down simply.
We’ve helped others in your shoes move on with clarity and less stress. If you want someone to walk you through your options, we’re here to help.
Contact Us for a NO OBLIGATION, FREE DISCUSSION
Is a Divorce Buyout Taxable? Here's the Simple Answer
In most cases, no, a divorce buyout is not taxable - as long as it’s done properly and within the right time frame.
Here’s what that means:
If you’re buying out your ex’s share of the house (or they’re buying out yours) as part of the divorce, and it happens within a year of the divorce being final, it’s usually not considered a taxable event.
The IRS sees it as part of splitting up property, not a sale that creates a gain or loss.
You won’t pay capital gains tax, income tax, or gift tax in most standard situations.
But be careful:
If the buyout happens after a year, or isn’t part of the divorce agreement, tax issues could pop up.
If you sell the house later for more than you “bought” it for, capital gains tax might apply at that point.
So, the key is timing and paperwork. Get it in writing as part of the divorce agreement, and do it within a year if you can.
What’s a Divorce Buyout, Exactly?
When a couple gets divorced and owns a home together, one of the big questions is:
“Who gets the house?”
A divorce buyout is when one person wants to keep the house, so they pay the other person for their share of it.
Here’s how it usually works:
Let’s say the house is worth $300,000 and there’s $100,000 left on the mortgage.
That means there’s $200,000 of equity (value you actually own).
If you each own half, your ex’s share is $100,000.
You’d pay them that amount to buy out their half, and then you’d own the home fully.
You might need to refinance the mortgage into your name only, or you might use other assets (like cash or savings) to cover the buyout.
It sounds simple, but it can get tricky with paperwork, timing, and tax rules—which is why it’s smart to get clear on how it works early on.
When Do Taxes Come Into It?
Most divorce buyouts aren’t taxable, but there are a few situations where taxes might apply, and it’s good to know what to watch out for.
Here’s when it can get tricky:
If the house is transferred more than one year after the divorce is final, the IRS might treat it differently, especially if it’s not clearly part of the divorce agreement.
This could lead to capital gains tax or gift tax problems.
If the buyout isn’t included in the divorce paperwork, it could look like a regular sale or transfer and that can create tax issues.
If you keep the house after the divorce and later sell it for a profit, you might have to pay capital gains tax on what you made, unless you qualify for a tax break.
If one spouse gives up their share without getting fair value (or trades it for less), the IRS might see that as a “gift”, and that can cause problems too.
Bottom Line:
Do it soon. Put it in writing. Keep it simple.
An Example of How This Can Work
Let’s say Sarah and Mike are getting divorced. They own a house together, and it’s worth $250,000. They still owe $50,000 on the mortgage.
That means there’s $200,000 in equity (the part of the house they truly own). They decide that Sarah will keep the house, and Mike will move out.
To make it fair, Sarah agrees to buy out Mike’s share, which is $100,000 (half of the equity).
Here’s what they do:
They include the buyout in their divorce paperwork.
Sarah gets the house, and her name goes on the mortgage and/or title deed.
Mike gets his $100,000.
Because it’s all part of the divorce and done within a year, there’s no tax bill for either of them. The IRS sees it as splitting property not a sale.
But let’s say they waited two years after the divorce to do this and never wrote it into the divorce agreement. That’s where tax issues could pop up.
What If A Buyout Doesn’t Work for You?
Sometimes a buyout just isn’t possible. Maybe one of you can’t afford it. Maybe you can’t agree on the value. Or maybe it’s just too stressful to deal with.
That’s OK. You’ve got a few options:
Put the house on the market, sell it, and split the money after the mortgage is paid off.
But:
It can take time
You might need repairs
There are costs like agents and closing fees
You still need to agree with your ex on everything
Some couples stay on the mortgage together a bit longer—maybe for the kids.
But:
You’re still tied financially
Missed payments hurt both your credit
It can cause problems later on
If you want out fast and clean, this is the easy way.
No agents or showings
No repairs
We buy as-is
Close in days, not months
Fair cash offer
We take the stress out of a tough situation and help both sides move forward.
Need to talk it through? We’re here to help. No pressure, No hard sell.
Want a Fresh Start Without the Stress? Here's How We Can Help
Going through a divorce is hard enough. You shouldn’t have to fight over the house or worry about tax problems on top of everything else.
At YDL Homes, we make things easier.
We’re a local home-buying company that helps people in tough situations—like divorce—sell their house quickly and fairly, without the usual hassle.
Here’s what we offer:
We buy houses as-is (no cleaning, no repairs needed)
No agents, no fees, no commissions
Fast closings—sometimes in as little as 7 days
A fair cash offer, based on your home’s current value
Real people who actually listen to your situation
We’ve helped others move on with less stress. If you’re ready to let go of the house and start fresh, we’re here for you.
Going through my divorce was overwhelming, and dealing with the house felt like too much. Everyone at YDL Homes made it so much easier. From the first phone call with Braydon to the day we handed over the keys, we never felt confused or pressured. They walked us through every step and helped us move forward. I’m so grateful we found them when we did.
— C. Johnson
Want to See What That Could Look Like For You?
Chat To Us - It's FREE with ZERO OBLIGATION
Get Your Free Offer TODAY!
Fill In This Form To Get Your No-Obligation All Cash Offer Started!
Complete The Form and See if Selling to YDL Homes Is Right For You!
Helpful Resources
Understanding the IRS Rules on Divorce and Property Transfers
According to IRS rules, transfers of property between spouses during a divorce are generally not taxable, as long as they’re part of the divorce agreement and completed within the right timeframe.
For full details straight from the source, visit:
