Vacation home and Divorce

[Unregistered]

My client has a vacation home he will sell in a few years at an estimated capital gain of $60,000. He is buying out his ex-wife’s share now by paying her $50,000. They agree to split the capital gains tax when the vacation home is sold. It will be a private payment and the ex-wife will not report the sale on her tax return because the husband will own 100% of the vacation house.
Question: Does his buyout from his ex-wife get added to his adjusted basis in the vacation home (and thereby drop his capital gain)? Does the ex-wife report the buyout of $50,000 as taxable income?

Thanks for your advice and experience! I appreciate this forum.. I learn so much!

[jainen]

No to both

No to both. The $50,000 and the share of gain are property settlements related to the divorce. His basis is the original basis from when they bought it jointly. The capital gain is fully taxable to him alone. Your client should have asked you this question before he signed the divorce papers.