Divorce · 26 U.S.C. §§1041, 121(d)(3)The house in a divorce: transfer, buyout or sale – the tax rules
Moving the house from one spouse to the other in a divorce does not trigger tax: no gain or loss is recognized on a transfer to a spouse, or to a former spouse if it is incident to the divorce – within one year after the marriage ends or related to ending it (26 U.S.C. §1041(a), (c)). The receiving spouse takes the other's basis, as if by gift (§1041(b)), which matters when the home is later sold. For the $250,000 home-sale exclusion, the spouse who receives the house counts the transferor's ownership period (§121(d)(3)(A)), and a spouse who moved out is treated as using the home as a principal residence while the former spouse is granted use of it under a divorce or separation instrument (§121(d)(3)(B)). Transfers to a nonresident alien spouse are not covered (§1041(d)).
What the Code says
No gain on the transfer
Spouse to spouse, or to a former spouse incident to the divorce (§1041(a)).
Incident to divorce
Within 1 year after the marriage ends, or related to ending it (§1041(c)).
Basis carries over
The receiving spouse takes the transferor's adjusted basis (§1041(b)).
Ownership tacking
For §121, the receiving spouse counts the transferor's ownership time (§121(d)(3)(A)).
Use while the ex lives there
A spouse is treated as using the home while the former spouse has use of it under a divorce or separation instrument (§121(d)(3)(B)).
Exception
Not available if the receiving spouse is a nonresident alien (§1041(d)).
The usual paths – and what to check
- Buyout: one spouse keeps the house – the deed and any refinance follow the decree or settlement.
- Sale now: both sign as owners; each may qualify for the $250,000 exclusion if both meet the tests.
- Sale later: a spouse who moved out may still meet the use test while the other lives there under the decree.
What the TC and title company need
- The divorce decree or settlement agreement – it decides who signs and how proceeds are split.
- Both spouses' signatures, or the decree that vests title in one of them.
- Payoff of the joint mortgage, or the refinance that releases the departing spouse.
Questions divorcing owners ask
Is transferring the house to my ex-spouse taxable?
No gain or loss is recognized on a transfer to a former spouse incident to the divorce (26 U.S.C. §1041(a)); the receiving spouse takes your basis.
Can I use the home sale exclusion if I moved out during the divorce?
You are treated as using it as your principal residence while your former spouse is granted use under a divorce or separation instrument (§121(d)(3)(B)).
What does 'incident to divorce' mean?
A transfer within one year after the marriage ends, or one related to ending the marriage (§1041(c)).
Related guides
Keep the decree, settlement agreement and payoff letters on the deal in ClosingCode, with tasks for each spouse's signature and the lender's release.
Start free trialSource: 26 U.S.C. §§1041 and 121(d)(3) (govinfo.gov, read October 25, 2026).
General information, not legal or tax advice. ClosingCode is software; it is not a law firm, tax adviser or brokerage. This guide is not a substitute for the advice or services of an attorney.