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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
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Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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Real Estate taxes I live in Washington State and was divorced

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Real Estate taxes

I live in Washington State and was divorced and the divorce decree was signed by the judge on 10/8/07 It included a Marital Settlement Agreement about how property was to be divided. Then about 9 months later we decided we wanted to do a buyout so my ex-wife could buyout my interest in the house. So we did an Amendment to the MaritalAgreement which included the option for a buyout and that was signed by the judge on 8/27/08.
She will be getting a loan soon and approximately January 31, 2009 we will do the closing and the buyout will be complete.

As I understand it from Pub 504 if the buyout is part of the decree and done within 6 years of the marriage ending then you do not have to pay taxes on that money. Is that correct? Also when I report that on my income tax form (1040) what line do I enter that on and is there a schedule that I have to use with it. What papers do I need to file with the taxes (i.e. divoce papers, her loan papers to pay me) Thank you

Dear XXXXX bob,


Thank you for your question.


You understand correctly. this transaction is not treated as a sale or a gift. Since there is no taxable gain or loss this is not reported.


Please see the following extract from the law.


SEC. 1041(a) provides that, generally, no gain or loss is recognized on transfers of property between spouses or former spouses incident to a divorce (unless the transferee is a nonresident alien). It is immaterial if the transfer is structured as a gift, sale or property division. Under Sec. 1041(b), a recipient spouse takes the transferor's carryover basis, as if the property were received as a gift.


This is errespective of the existance of the loan she gets. this will be treated as a cashless non-taxable exchange.


You do not have to do a gift tax return.


If this were, based on the dates you gave it would have been a 2009 taxable event.

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