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Capital Gain on Sale of House Acquired via Divorce Settlement

My friend has a waterfront house whose sale is expected to net $1M after brokers' fees. This house was acquired from her spouse as part of a divorce settlement. The following apply: Paid for house in 1969 approx. $47k Put into house with major modeling of 1978/79 approx. $100k Estimating improvements since '79 to be at least $100k We are attempting to establish the basis for the upcoming sale. The agreement of separation reads: "With respect to the aforesaid transfer, the parties understand that they are governed by the provisions of Section 1041 of the Internal Revenue Code of 1986 and that Wife's basis in the Husband's interest acquired thereunder shall be Husband's adjusted basis." Could someone please explain what this means and what the approximate basis might be? We assume the $250,000 exclusion on the gain, and that the balance would be taxed at 15%. Thank you very much for your help. Frank

Reply to
frank1492
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How long between e divorce becoming final and he house sale?

Basis does not change on sale of property incident to a divorce, as noted in the decree itself.

Reply to
Arthur Kamlet

It means your friend's basis is $47,000 + the cost of the capital improvements or, based on your figures, about $247,000.

Your assumption is valid if your friend has made this home her primary residence for at least 2 of the 5 years ending on the sale date.

By the way, I've assumed this place hasn't been rented out since 1992. If it has, basis is lowered by depreciation allowed or allowable and gain equal to that depreciation amount would be taxed at 25%.

Reply to
Bill Brown

You may need proof of all of the above amounts.

If you converted the home to rental, and back to home again, then the

250k exclusion is reduced.
Reply to
removeps-groups

I don't think so. Do you have a cite?

Reply to
Bill Brown

Well, the statute says the exclusion does not apply "to so much of the gain from the sale or exchange of property as is allocated to periods of nonqualified use."

I don't know what that means. But that's what it could mean.

Reply to
Stuart A. Bronstein

For rental or business use of your home, it means that any gain on the sale attributable to depreciation allowed or allowable (doesn't matter if you actually deducted depreciation) is not part of the the homeowner $250K exclusion. You have to report that gain.

Reply to
Alan

The reduction is a fraction: time not used as principal residence after 1/1/2009 over total time owned by taxpayer. IRC 121(b)(4)[5](C).

Reply to
Tom Healy CPA

That would be unqualified use after 2008. This was a recent (about 2 years ago) change in the statute.

Reply to
D. Stussy

11:41 pm, " snipped-for-privacy@yahoo.com"

"Unqualified use" does NOT include any use prior to January 1, 2009. "Unqualified use" also does not include any portion of the 5 year period ending on the sale date that occurs after the last use as a primary residence. See IRC Section 121(b). The rules are more generous for members of the uniformed services, foreign service and intelligence community on official extended duty.

This rule, enacted in 2008, does not affect how much, if any, depreciation has to be recaptured as 25% max rate taxable gain.

Reply to
Bill Brown

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