Case study: The forgotten Capital Gains
Last month, I was contacted by an attorney regarding her client who wanted to sell her condo. The divorce was final, so this would be rather straightforward sale.
I spoke with Wife, who informed me that the condo had tenants living in it, and we needed to make some decisions about how best to proceed with the sale. I learned that Husband had not deeded off of title, and unless he did, I would need his signatures on all paperwork. I asked her how long it had been since she lived in the condo and she indicated nine years. I was unsure how or if Husband deeding off of title prior to the sale would affect either party's capital gains hit, so I advised her to speak with a tax adviser so that they could handle a title transfer prior to listing the property, if needed.
When I mentioned Capital Gains, she asked me what it was. She had never heard of it before. I summarized it for her and explained she would likely be affected by it. She was disappointed to hear that she could be on the hook for the entire tax burden because she was awarded the condo since it had the most equity. She'd also given up her interest in the martial residence as well as part of the savings account.
Wife contacted her attorney who informed her that the capital gains liability on the condo was, indeed her responsibility. The estimated tax amount was for her is $58,000.