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jgordosea
jgordosea, Enrolled Agent
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Experience:  I've prepared all types of taxes since 1987.
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My ex-husband and I own property in Belize. In the divorce

Resolved Question:

My ex-husband and I own property in Belize. In the divorce it was listed as an asset to be sold. We had an equalization payment in the divorce and it was to be tax-free to me. Now, he is wanting to buy me out on the property. I told him that I would accept his offer as long as there was no tax implication on my part. The amt is $50K. How do we handle this?
Submitted: 2 years ago.
Category: Tax
Expert:  jgordosea replied 2 years ago.

Greetings,

 

There is no gain or loss on transfer of property between ex-spouses that is related to a divorce.

Neither you or he reports anything on the income tax returns.

 

From http://www.law.cornell.edu/uscode/text/26/1041

"(a) General rule

No gain or loss shall be recognized on a transfer of property from an individual to (or in trust for the benefit of)-

(1) a spouse, or
(2) a former spouse, but only if the transfer is incident to the divorce.

(b) Transfer treated as gift; transferee has transferor's basis

In the case of any transfer of property described in subsection (a)-

(1) for purposes of this subtitle, the property shall be treated as acquired by the transferee by gift, and

(2) the basis of the transferee in the property shall be the adjusted basis of the transferor.

(c) Incident to divorce

For purposes of subsection (a)(2), a transfer of property is incident to the divorce if such transfer-

(1) occurs within 1 year after the date on which the marriage ceases, or

(2) is related to the cessation of the marriage."

 

So long as it is related to the ending of the marriage there is no income tax reporting.

 

Please ask if you need clarification.

Thank you.

Customer: replied 2 years ago.

I appreciate the information provided. However, how do I -- or do I need to -- account for the $50K? Do I need to have him write several checks and deposit into different accounts? Is it acceptable to receive one check for the lump sum? I do NOT want to have to deal w/the IRS on this issue...

thx for any input~

Expert:  jgordosea replied 2 years ago.

Hello again,

 

There is no reason to write several checks to different accounts. In fact, that attempt to avoid the bank reporting of transactions of 10,000 could draw more attention as it could be seen as trying to avoid the reporting requirement.

 

It is acceptable to get one lump sum.

 

Documentation, on the check and in a cover letter, that indicates this is for transfer of marital property is useful for future reference. There is no reason to think that the IRS will inquire on this transaction. About the only way the IRS would likely question this would be if there was already an examination on this tax z year then this, like all other items in the year, would be looked at.

 

Hope this clarifies for you.

 

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3035
Experience: I've prepared all types of taxes since 1987.
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