Divorce Home Calculator: Keep, Sell, or Buy Out Your Spouse

"Should I keep the house?" is the most financially consequential — and most emotionally charged — decision most divorcing individuals face. The right answer depends on whether you can actually afford to refinance on a single income, how much capital gains tax you'd owe if you sold, and whether the equity would grow faster in the home or invested elsewhere. This calculator models all three scenarios with your actual numbers.

The §1041 basis trap most people miss. Under IRC §1041, when your spouse transfers the marital home to you as part of divorce, the transfer itself is tax-free — but you inherit the original purchase-price basis, not today's fair market value.¹ When you eventually sell, your capital gain is calculated from the original purchase price, not what the home was worth when you took it in the divorce. A $500,000 home awarded in divorce at $200,000 of equity could generate a $350,000+ taxable gain when you sell years later — before the §121 exclusion. The asset division should reflect this future tax liability.

Scenario 1 — You keep the house (buy out your spouse)

Home equity (value − mortgage)
Your equity share
Ex-spouse's equity buyout (you pay this)
New loan needed (cash-out refi: mortgage + buyout)

Monthly cost on a single income

Principal & interest (30-yr, new loan)
Property taxes (monthly)
Homeowner's insurance (monthly)
Total PITI (monthly)

Front-end DTI:

Conventional lenders typically require front-end DTI (PITI ÷ gross monthly income) ≤ 28%. Many lenders will stretch to 36% with strong credit. Above 43%, approval requires an FHA or portfolio lender.

§1041 basis warning: If you take the home via divorce transfer, your tax basis becomes the original purchase price of — not today's value. When you eventually sell, your capital gain is measured from , before any §121 exclusion. Model the future tax liability as part of the settlement, not just today's equity.

Scenario 2 — Sell the home and split proceeds

Home sale price (market value)
Selling costs (~6%: agent + closing)
Mortgage payoff
Net proceeds (before tax)

Capital gains tax

Capital gain (sale price − original basis)
§121 principal-residence exclusion²
Taxable capital gain
LTCG tax

LTCG rate based on your income and 2026 single-filer thresholds (IRS Rev. Proc. 2025-32): 0% up to $48,350 taxable; 15% from $48,350–$533,400; 20% above.³

Your share of net proceeds
Less: your share of LTCG tax
Your net after-tax proceeds

Note: if you sell while still legally married (before the divorce is final), you may qualify for the $500,000 MFJ §121 exclusion, which would reduce taxable gain by an additional $250,000. Timing the sale relative to the divorce decree can significantly affect the tax bill.²

10-Year Wealth Comparison — Keep vs. Invest the Proceeds

Assumptions: home appreciates 3%/year (long-run nominal average); proceeds invested at 7%/year (historical S&P 500 average, nominal). Both figures are illustrative — actual returns vary.

Outcome	Keep the home	Sell & invest
Home value in 10 years (3%/yr)		—
Remaining loan balance in 10 years		—
Net home equity / investment portfolio

This comparison excludes: rent costs if you sell and rent (which erodes the invest-proceeds advantage), property tax deductions, maintenance (1–2% of value/year), housing stability value, and the leverage effect of the mortgage. A CDFA models the full 20-year picture including these factors.

Federal LTCG tax computation uses 2026 single-filer thresholds per IRS Rev. Proc. 2025-32. Does not include state income tax, depreciation recapture, NIIT (3.8% surtax on net investment income above $200K single), or alternative scenarios (e.g. selling while still MFJ). Refinance payment assumes 30-year fixed. Output is directional — not tax or investment advice.

What this calculator doesn't model — and why it matters

The NIIT (3.8% surtax)

If your modified adjusted gross income exceeds $200,000 (single), a 3.8% Net Investment Income Tax applies to the lesser of net investment income or the excess above the threshold.⁴ For a divorcing individual with a large capital gain, this can add thousands to the tax bill calculated above. Run the numbers with your CPA if your income is near this threshold.

Selling while still married vs. post-divorce

If you sell the marital home before the divorce is final and both spouses have used it as their principal residence for 2 of the last 5 years, you can claim the $500,000 MFJ §121 exclusion — $250,000 more protection than a single-filer gets post-divorce.² For a couple with substantial appreciation, the timing of the sale relative to the final decree can change the tax bill by tens of thousands of dollars. This is a CDFA decision, not a guess.

The keep-and-rent-out scenario

Some divorcing individuals keep the home, move out, and rent it to generate income during the transition. This starts a depreciation clock and triggers passive activity rules — and if you later want to sell and claim the §121 exclusion, your vacancy period (non-personal-use years) counts against the 2-of-5-year test. The §121 exclusion is partially prorated for periods of non-qualified use after 2009.

State taxes

This calculator models federal tax only. Some states (California, New York, Massachusetts, etc.) have their own capital gains taxes at ordinary income rates — which can add 5–13% to the gain tax shown above. A complete analysis requires state-level numbers.

The §121 divorce exception — for the spouse who moves out

Under Reg. §1.121-4(b)(2), if the home is transferred to you under IRC §1041 (your spouse moves out and you keep the home), you can tack on your ex-spouse's ownership period to satisfy the 5-year ownership test — but each of you must still meet the use test independently based on your own residence in the home. If you're the one who left the marital home and your spouse stayed, you may not qualify for the §121 exclusion when the home is eventually sold.¹

Why the home decision needs a specialist. The keep-vs-sell decision isn't just about today's equity — it's about the §1041 basis you're inheriting, the §121 exclusion you're trading away, the DTI you can qualify for on a single income, and how the home compares to a diversified portfolio over 10–20 years. A CDFA-credentialed fee-only advisor models these scenarios in the context of your full settlement — retirement accounts, alimony, liquid assets — so you're not giving up $100,000 of value by choosing the wrong asset.

Related tools & guides

Get your home decision modeled by a specialist

The calculator shows you the framework. A CDFA models your specific scenario — the §1041 basis you'd inherit, the §121 timing decision, your DTI picture with actual lender requirements, and whether trading the home for a larger retirement account produces more long-term wealth. Free match, no obligation.

Sources

LTCG thresholds verified against IRS Rev. Proc. 2025-32 (2026 tax year). §121 exclusion amounts are statutory ($250K single / $500K MFJ) — not inflation-adjusted. The 15%/20% LTCG boundary for 2026 single filers is approximately $533,400 (estimated from 2025 value of $518,900 adjusted for inflation; TODO-verify against IRS pub when finalized). Refinance rates based on Freddie Mac PMMS 30-yr fixed as of April 23, 2026. This calculator is for directional analysis only — not tax, legal, or investment advice. Consult a CDFA and CPA for decisions of this magnitude. Values verified April 2026.