house basis and divorce


M

Morgan

House basis and divorce question

Divorcing husband and wife jointly own house with $350,000
basis (including acquisition cost and cost of addition),
$570,000 market value and $170,000 mortgage debt.

So each has a $175,000 tax basis, and equity of $200,000
(after payoff of mortgage). (Forget, for the moment sales
costs.)

If, as part of divorce settlement, wife buys out husband's
share for $200,000 plus assumption of his half of the
mortgage ----- that is assumption of $85,000 debt, what is
her new basis for the purposes of Sec 121?

Is her basis still just $350,000?

Or is her basis $175,000 (her original half)
Plus, $200,000? That is $375,000?

Or is her tax basis $175,000 (her half)
Plus $200,000? Plus the $85,000 debt assumed?
That is, is her basis $460,000?

Logic and fairness suggest it is $460,000. But hey, this is
tax law, so what does logic and fairness have to do with it?

If the answer is $460,000, what legal documents must be
executed to insure that this is really treated as a sale of
one half interest, and not merely a transfer incident to
divorce?
 
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P

Paul A Thomas

Morgan said:
House basis and divorce question

Divorcing husband and wife jointly own house with $350,000
basis (including acquisition cost and cost of addition),
$570,000 market value and $170,000 mortgage debt.

So each has a $175,000 tax basis, and equity of $200,000
(after payoff of mortgage). (Forget, for the moment sales
costs.)

If, as part of divorce settlement, wife buys out husband's
share for $200,000 plus assumption of his half of the
mortgage ----- that is assumption of $85,000 debt, what is
her new basis for the purposes of Sec 121?

Is her basis still just $350,000?
Yes. Cut through all the smoke, and what you have is a
division of property (house, car, boat, cash, investments,
etc). There isn't a gain or loss, and not any change in
cost basis for the spouse that ends up with the house.
 
A

Arthur L. Rubin

Morgan said:
If, as part of divorce settlement, wife buys out husband's
share for $200,000 plus assumption of his half of the
mortgage ----- that is assumption of $85,000 debt, what is
her new basis for the purposes of Sec 121?
....

If the answer is $460,000, what legal documents must be
executed to insure that this is really treated as a sale of
one half interest, and not merely a transfer incident to
divorce?
From what you wrote, it looks like a transfer incident
to divorce....I think you (or the principals) need a
better lawyer.
 
G

Gene E. Utterback, EA

Morgan said:
House basis and divorce question

Divorcing husband and wife jointly own house with $350,000
basis (including acquisition cost and cost of addition),
$570,000 market value and $170,000 mortgage debt.

So each has a $175,000 tax basis, and equity of $200,000
(after payoff of mortgage). (Forget, for the moment sales
costs.)

If, as part of divorce settlement, wife buys out husband's
share for $200,000 plus assumption of his half of the
mortgage ----- that is assumption of $85,000 debt, what is
her new basis for the purposes of Sec 121?

Is her basis still just $350,000?

Or is her basis $175,000 (her original half)
Plus, $200,000? That is $375,000?

Or is her tax basis $175,000 (her half)
Plus $200,000? Plus the $85,000 debt assumed?
That is, is her basis $460,000?

Logic and fairness suggest it is $460,000. But hey, this is
tax law, so what does logic and fairness have to do with it?

If the answer is $460,000, what legal documents must be
executed to insure that this is really treated as a sale of
one half interest, and not merely a transfer incident to
divorce?
Since there can be NO gain or loss associated with a
property division/distribution pursuant to a divorce, the
ex-wife's basis after the divorce, and after all of the
hoops and monetary exchanges, is the same as the couple's
basis in the property before the divorce.

Sorry,
Gene E. Utterback, EA
 
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S

Seth Breidbart

Since there can be NO gain or loss associated with a
property division/distribution pursuant to a divorce, the
ex-wife's basis after the divorce, and after all of the
hoops and monetary exchanges, is the same as the couple's
basis in the property before the divorce.
However, if she buys his half for $285K _not_ pursuant to
the divorce, her basis goes up to $460K, so that would be
the better way to go (if it's still possible to arrange
things that way). He'd have a gain, but it's within the
excludable range (assuming enough time, etc.)

Seth
 

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