Receiving money from ex husband for house he still owns - taxable income?

amyh31

My ex husband and I set up a legal agreement outside of our divorce settlement that provides me with a specific amount of money per year for five years for my portion of the home we lived in during our marriage. He was going to sell it when we agreed to divorce, but the housing market tanked so he ended up keeping it and said he’d give me money for my portion of the house, paid in increments. But this was done separate from the divorce decree because he wanted to appear more financially stable to lenders should he decide to get a loan for a new house later on. My question is, do I owe taxes on the money he is paying me yearly? To be clear, he is not buying me out of my portion of the house. My name was never on the deed. I don’t know if that matters.

MatthewD

Hello Amyh31,

This is an interesting question. Is this type of income taxable or not? IRS Publication 17 has information on different types and classifications of taxable income. So do you owe tax on this income. Yes. Let me explain why.

This IRS FAQ on "What is taxable and nontaxable income?", says the following, "Generally, an amount included in your income is taxable unless it is specifically exempted by law."

The only way it could be considered nontaxable is if it was a gift that was less than $18,000 a year, however I don't think that would be accurate since your ex received something in exchange for the compensation paid to you, which was the use of the house until it sells and he is paying you for your share of the house. It really isn't rent either.

Technically this is an installment agreement, where he is purchasing your share of the property until the house sells outright. To enter the installment sale, see the Uncommon Income section under the income menu and select Installment Sale.

When you start entering the sales information, enter only your share of the house and then the payments you received.

Did you start getting payments in a prior year? If you did and did not report that on prior year returns you may need to amend the prior years.

It may be worth your time to consult with a real estate attorney with tax law experience.