When a house sells, the proceeds of the sale are split among the owners according to what the deed says each person owns, adjusted by any written agreement between them or a court order in a divorce or probate. The math runs in a fixed order: start with the sale price, subtract the mortgage payoff and every closing cost, then divide what’s left by each owner’s percentage. Two things trip sellers up. The deed does not always match what people think they agreed to, and each recipient owes their own tax on the profit.
Start With What’s Actually Left to Split
The number you divide is never the sale price. It’s the net proceeds, and you find it on the Closing Disclosure, the standardized settlement form issued for mortgages originated after October 3, 2015.1Consumer Financial Protection Bureau. What Is a Closing Disclosure? Older loans and reverse mortgages use the HUD-1 Settlement Statement instead.2Consumer Financial Protection Bureau. What Is a HUD-1 Settlement Statement?
From the gross sale price, the closing agent deducts everything paid before any owner sees a dollar:
- The mortgage payoff, meaning the remaining principal plus interest accrued through the closing date. Any home equity loan or line of credit gets paid off as well.
- Real estate commissions, historically 5% to 6% of the sale price, currently averaging around 5.5% to 5.7% nationally.
- Transfer taxes charged by the state, county, or city on the change of ownership. Rates vary widely by location.
- Title and escrow fees for the title search, title insurance, and handling the closing, commonly $1,000 to $2,000.
- Prorated property taxes, HOA dues, and utility charges, divided between buyer and seller based on the closing date.
- Seller concessions, if you agreed to cover part of the buyer’s closing costs or credit them for repairs.
- Any liens or judgments recorded against the property, paid in order of priority.
- Recording fees for the deed transfer and mortgage release, usually $50 to $150.
What’s left is the net proceeds. That’s the pool the owners actually divide.
How the Deed Decides the Default Split
The form of ownership on the title controls the split unless a separate written agreement overrides it.
Joint Tenancy
Joint tenancy with right of survivorship gives every owner an equal share. Two joint tenants split 50/50; three split into thirds. It does not matter who put in a larger down payment or paid more of the mortgage. Equal ownership is built into the structure.
Tenancy in Common
Tenancy in common allows unequal shares. One owner might hold 70% and another 30%, with the percentages stated on the deed. If the deed is silent on the split, most jurisdictions presume equal shares, but that presumption can be rebutted with evidence of a different agreement.
When a Written Agreement Changes the Math
Co-owners who want a split that doesn’t match the deed need to put it in writing before the sale. A cohabitation agreement, partnership contract, or co-ownership agreement can require, say, that one partner be reimbursed $30,000 for a kitchen renovation off the top before the remaining proceeds are divided. Without a written contract, disagreements about who paid what turn into arguments over old bank statements and receipts, and the cost of resolving that fight tends to swallow the amount in dispute.
Splitting a House in a Divorce
Divorce puts a layer of family law on top of the ownership question. The starting point isn’t necessarily the deed. It’s whether your state follows community property or equitable distribution rules.
Community Property States
Nine states treat most assets acquired during the marriage as equally owned by both spouses: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. The default there is a 50/50 split of the net proceeds regardless of whose name is on the title or who earned the money that paid the mortgage. Property one spouse owned before the marriage may qualify as separate, but that line blurs quickly once marital funds go toward payments, renovations, or upkeep.
Equitable Distribution States
The other 41 states and the District of Columbia follow equitable distribution. Fair, not automatically equal. A court weighs the length of the marriage, each spouse’s income and earning potential, contributions to the household including non-financial ones like childcare, and each person’s projected financial needs. The result might be 50/50, 60/40, or something else. A negotiated settlement agreement can set any ratio the spouses accept.
When the Home Is Underwater
If the mortgage balance exceeds the home’s value, there are no proceeds to divide. The couple is splitting debt instead. The same community property or equitable distribution framework applies, but the question shifts to who absorbs the shortfall after sale. A short sale negotiated with the lender is one option; accepting the loss and moving on is often the only realistic one.
Splitting a House Among Heirs
When the owner has died, the home usually passes through probate before anyone receives money. The executor named in the will, or a court-appointed administrator if there is no will, handles the sale and deposits the proceeds into an estate account.
Heirs are not first in line. Creditors are. The executor uses the proceeds to pay off the mortgage, the decedent’s outstanding debts, funeral expenses, and estate taxes. Most states require the executor to notify known creditors, publish notice for unknown ones, and wait out a claim period of a few months before distributing anything.
Whatever remains goes to the beneficiaries named in the will. Without a will, state intestacy law dictates who inherits and in what proportion, generally starting with a surviving spouse and children before moving to parents, siblings, and more distant relatives. The executor files an accounting with the probate court, and the court must approve the distribution before checks go out.
When Co-Owners Cannot Agree
If the owners deadlock over whether to sell, what price to accept, or how to divide the proceeds, any one of them can file a partition action. Courts treat the right to partition as near-absolute. Even a 10% owner can force the issue.
The court will first consider physically dividing the property. That works for raw land and almost never for a house, so in practice the court orders the property sold and divides the proceeds by ownership percentage. Before the final split, the court runs an accounting that credits owners who carried more than their share of the financial load. Common credits include mortgage payments beyond a pro-rata share, property taxes, insurance premiums, and the cost of necessary repairs or value-adding improvements. If one co-owner lived in the home exclusively while the others did not, the court may charge that person a fair occupancy rent that offsets their credits. Sale expenses and attorney fees come out of the gross proceeds before anyone’s share is calculated.
Partition is slow and expensive. Both sides usually end up wishing they had negotiated a buyout instead.
Buying Out a Co-Owner Instead
When one owner wants to keep the house, the buyout formula is straightforward. Take the current market value, subtract the mortgage payoff, and multiply the resulting equity by the departing owner’s percentage. On a $400,000 home with a $200,000 mortgage, the equity is $200,000, and a 50% co-owner is owed $100,000. The staying owner typically refinances the mortgage into their name alone and funds the payment out of the new loan or other cash.
Some buyouts also subtract hypothetical selling costs from the equity figure, on the theory that the staying owner is avoiding commissions the departing owner would otherwise have paid on a real sale. That’s a negotiating point, not a rule.
Taxes on Each Person’s Share
Splitting the money is half the job. Each recipient handles their own tax on the profit, and one federal exclusion does most of the work for typical homeowners.
The Section 121 Exclusion
If the property was your primary residence, you can exclude up to $250,000 of capital gain from federal income tax, or up to $500,000 if you’re married and file jointly.3Office of the Law Revision Counsel. 26 USC 121 Exclusion of Gain From Sale of Principal Residence You must have owned the home for at least two years and lived in it as your main residence for at least two of the five years before the sale.4Internal Revenue Service. Sale of Residence – Real Estate Tax Tips The ownership and use periods don’t have to be consecutive or perfectly overlapping.
On a joint return, each spouse can claim a $250,000 exclusion if both meet the use test and at least one meets the ownership test. That’s how the $500,000 combined figure works. For most sellers of a primary residence, the exclusion wipes out the entire gain.
One carve-out matters if you ever rented the home out: gain attributable to depreciation you claimed cannot be excluded. That portion is taxed at 25% regardless of Section 121.4Internal Revenue Service. Sale of Residence – Real Estate Tax Tips
Capital Gains Tax on Anything Above the Exclusion
Gain above the exclusion is taxed as a long-term capital gain if you owned the home for more than a year. For 2026, the federal brackets are 0% for single filers with taxable income up to about $49,450 (or joint filers up to about $98,900), 15% up to roughly $545,500 single or $613,700 joint, and 20% above those thresholds.
A separate 3.8% Net Investment Income Tax may apply if your modified adjusted gross income exceeds $200,000 single or $250,000 joint.5Office of the Law Revision Counsel. 26 USC 1411 Imposition of Tax Gain already excluded under Section 121 does not count as net investment income, so the surtax only touches the portion of gain above the exclusion.6Internal Revenue Service. Net Investment Income Tax
If Any Owner Is a Foreign Person
When any owner on the deed is a foreign person or entity, the buyer generally must withhold 15% of the sale price under the Foreign Investment in Real Property Tax Act and send it to the IRS.7Internal Revenue Service. FIRPTA Withholding That comes off the top before the foreign seller receives their share. Withholding drops to zero when the buyer intends to use the property as a personal residence and the sale price is $300,000 or less.8Internal Revenue Service. Exceptions From FIRPTA Withholding A foreign seller whose actual tax liability is lower than the withholding can apply for a withholding certificate to reduce the amount, but the application has to be filed before closing.9Internal Revenue Service. Instructions for Form 8288 A U.S. co-owner who signs a certification of nonforeign status is not subject to the withholding on their share.
Receiving Your Share Safely
Once the numbers are set, the escrow agent or closing attorney disburses funds according to written instructions from each party. Most closings use wire transfers, and money typically arrives the same day or within 24 to 48 hours. Cashier’s checks are an alternative, though banks often place a hold before the full amount clears.
Wire fraud is the biggest risk at this stage. Scammers monitor real estate transactions and send fake wire instructions nearly identical to the real ones, redirecting the entire payout to a fraudulent account. The Consumer Financial Protection Bureau recommends several precautions:10Consumer Financial Protection Bureau. Mortgage Closing Scams: How to Protect Yourself and Your Closing Funds
- Call your title company or closing attorney at a number you confirmed in advance and verbally verify the account name and routing number before any wire goes out. Do not use a phone number pulled from an email.
- Treat any emailed wire instructions as suspect until confirmed through a separate channel.
- Agree on a code word with your closing agent early in the process so you can verify identity if something feels off.
- Never email account numbers or personal financial information.
Keep your copy of the Closing Disclosure once the funds arrive. It’s the definitive record of every charge, credit, and disbursement, and you’ll need it at tax time or if any question comes up about the final numbers.