Dear 0iabug,
There is no capital gains generated for a transfer of property between you and your spouse as a result of a divorce settlement ordered by the court.
However, for the property you sell and then split the proceeds, you will have a capital gains tax exposure.
When your ex sells that home, he, not you, will be liable for any capital gains tax. However the court may have directed another way to handle this. You need to check with your attorney and revue the divorce documents closely.
Courts frequently overlook the tax issues related to this type of arrangement.
For example: does he distribute your share to you before or after tax?
Also if that third property were a rental, he has recapture tax to pay which is 25%.
The IRS does not get involved in the issue about the divorce decree. that is for the divorce court to decide who pays the tax, or whether the settlement comes before or after taxes.
In the absence of a divorce decree stating otherwise, the IRS will assess tax on the owner of the properties. (the seller of record).
to know for sure if there is capital gains, you need to use the following formula:
1. Capital gains (residence) = sale price - (original cost, + improvements, + major repairs, + closing costs from original purchase not taken before) - cost of selling.
2. Capital gains (rental) high level view = sale price - (original cost + improvements and major repairs that add value, - accumulated deprecation) - cost of selling.
accumulated depreciation is taxed at 25%.
If the one that was sold was the primary residence, then it will be eligible for capital gains exclusion if it was the primary residence for 2 of the past 5 years.
Tax Preparer
GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Bug,
Recapture tax: When rents are reported for income taxes they are reported on schedule E. Landlords are allowed to take all necessary and customary expenses to reduce income for tax purposes. Among those expenses is deprecation. The IRS assumes and inputs depreciation whether it was actually taken or not, so most people take the depreciation each year of the rental. This results in a passive loss, which in turn generously reduces income tax, producing actual income form tax refunds. The IRS recognizes this small windfall, by recapturing the depreciation. So the IRS will assess a 25% tax on the accumulated depreciation. Accumulated depreciation is the total of all the depreciation taken on a property from day one to present.
You do not really say if this is a rental or not, so I included both situations, principle residence, and rental.
If the net is 101K and it was property held for investment and not a rental, then the capital gains can be approximately, if held for longer than one year, 15,000 dollars.
If it is a rental, I can not tell you without knowing what the depreciation is.
If this is a rental you can use the following calculator to what the approximate tax and recapture is:
http://www.realestate-calc.com/Real_Estate_Tax_Calculator_I2.asp
If this was the primary residence and he owned it and you both used it for 2 of the past 5 years, there would be no capital gains tax.
You and your attorney should be able to force him to show you the 1099-s from the sale and the HUD form.
If it is a rental you can ask for the schedule D and form 4797 which show had the recapture was determined.