This week my very smart colleague Jen Green is back with Part 2 in her series of important tax issues that need to be considered when dividing marital property during a divorce.
4. Principal Residence
The marital residence is one of the largest marital assets. In general, the tax code provides that a single taxpayer can exclude up to $250,000 of gain from the sale of a principal residence, provided he or she has lived there for two out of the last five years .
5. Business Interests
The existence of business interests as marital assets may create tax consequences when dividing those interests pursuant to a divorce agreement. Tax planning for transferring business interests depends on the type of entity involved, and specific care must be taken to ensure that certain tax attributes are not lost or that inadvertent tax liabilities are not somehow triggered. For example, interests in S corporations can result in suspended losses (losses that are carried into future years) instead of being able to be deducted in the year that they are incurred. When those interests are transferred pursuant to a divorce, those suspended losses may be … Keep reading
I’ve written before about the emotional roller coaster that can come along when it’s time to divide assets during the divorce process. Today my colleague Jen Green offers the first of several tax rules – and their consequences – for transferring certain property between former spouses. Stay tuned next week for her assessment of additional tax rules in Part 2.
Dividing the marital property pursuant to a divorce can be quite stressful. Nevertheless, it is important to understand the tax ramifications when distributing property between the former spouses. Although most transfers of marital property between former spouses are generally non-taxable, there are some important tax issues that should be understood at the outset in order to avoid any unexpected tax consequences.
To begin with, one must be cognizant of the tax basis in the property received by the former spouse. Knowing one’s tax basis affects the amount of gain or loss that will be required to be reported when the property received is eventually sold. In addition, some transferred property, such as the principal home, qualifies for gain exclusion up to a certain threshold amount when the residence is sold. The transfer of … Keep reading