When property and financial assets are divided in divorce, certain assets or portions thereof are transferred from one spouse to the other. The most common are the marital home, financial accounts and jewelry. During the marriage, such transfers are considered to be gifts of a non-taxable nature. Transfers for purposes of divorce are subject to specific regulations in order to maintain the same non-taxable status.
As per the Internal Revenue Service Publication 504, Divorced or Separated Individuals , the following are required:
Transfer Between Spouses
Generally, no gain or loss is recognized on a transfer of property from you to (or in trust for the benefit of):
- Your spouse, or
- Your former spouse, but only if the transfer is incident to your divorce.
This rule applies even if the transfer was in exchange for cash, the release of marital rights, the assumption of liabilities, or other consideration.”
There are a few exceptions, one of them applicable to your spouse being a non-resident alien.
Home Ownership Transfers
Common Question: Is there tax on home ownership transfer if one of us “buys out” the other as part of our divorce agreement?
There is no tax on the ownership transfer when one of you “buys out” the other in their interest in the marital home. You have one year after the date of the final divorce to make the transaction, or up to six years in certain circumstances. Yes, there are adjustments to make to the figures when one of you has become full owner and decides to sell. The tax laws at this time allow for a $250,000 exclusion, meaning only profits above that amount are taxable. Some cases may have different circumstances and will require additional consideration and research by a qualified tax professional..
Federal income tax rules related to divorce apply in all states.
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