Husband and wife married several years and purchase land in 1973 in Wisconsin, a community property state. They divorce in 1984. She receive land as part of settlement. Husband dies a few years ago. She sells land 2016. One attorney says her basis is FMV in 1984. Second attorney says basis is 1973 purchase price or value of property in 1973. They both can't be correct.
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1st mistake was to ask an attorney a tax question. Read the basis rules that address step-up of basis.Believe nothing you have not personally researched and verified. -
Rest assured I didn't ask either attorney. The client is getting two different opinions. In reading PUB 504 I find the following: "Basis of property received. Your basis in property received from your spouse (or former spouse, if incident to your divorce) is the same as your spouse's adjusted basis. This applies for determining either gain or loss when you later dispose of the property. It applies whether the property's adjusted basis is less than, equal to, or greater than either its value at the time of the transfer or any consideration you paid. It also applies even if the property's liabilities are more than its adjusted basis." Since Wisconsin is a community property state what the two of them paid for the property in 1973 while they were married I am assuming should be the basis. I don't believe stepped-up basis applies because he died years after the divorce and the settlement.Comment
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basis is stepped up at death, not gift, not divorce
And the stepped basis at death is for property the Deceased OWNED at date of death
He didn't own the property when HE died
The Atty with divorce date is confusing that normal splits are based upon FMV, but that does NOT change their basis
Wife got the land (and basis) at what THEY paid for it. She owned it when he died, His death only effects what he OWNED when he died
I once had a client where the husband died,
we all thought they had a great marriage.
Can't judge a book by its cover.
I was preparing her return, after he died.
I was saying I was sorry for her loss
She said, DON'T BE!
I was in the process of divorcing the louse, re was not going to let me get anything
The lol, he died and I GOT IT ALL, at FMV Basis!Comment
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Claud46: thank you for verifying my conclusion.Comment
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Pub 504.
"Property received before July 19, 1984. Your basis
in property received in settlement of marital support rights
before July 19, 1984, or under an instrument in effect before
that date (other than property for which you and your
spouse (or former spouse) made a “section 1041 election”)
is its fair market value when you received it."
section 1041 does not use the term "marital support rights". Prior to July 19, 1984 gains on transfers incident to divorce were taxable and therefore the basis would be increased.Comment
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Thank you, for a specific clarification
This is specifically for property received in settlement of [marital support] rights
In lieu of alimony?
What about the mere separation of property between the two, not as "Alimony"Comment
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I have no memory of this applying only to marital support rights.Originally posted by claud46 View Post
Here is some history:
[4830-01-p] Published August 3, 2001
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-107151-00]
RIN 1545-AX99
Constructive transfers and transfers of property to a third party on behalf of a spouse
The House Report accompanying the 1984 Act states:
The current rules governing transfers of property between spouses
or former spouses incident to divorce have not worked well and have led to
much controversy and litigation. Often the rules have proved a trap for the
unwary . . . .
Furthermore, in divorce cases, the government often gets
whipsawed. The transferor will not report any gain on the transfer, while the recipient spouse, when he or she sells, is entitled under [United States
v. Davis, 370 U.S. 65 (1962)] to compute his or her gain or loss by
reference to a basis equal to the fair market value of the property at the
time received.Comment
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Thanks, now I know if "I" have this in the future I need to fully research
I wasn't "picking" at your post. I saw the works "for Marital Support" = Alimony, right
vs just applying to the splitting up of the material estate
Something just still bothers me
When sold by receiving party they use FMV when received.
OK then did giving party pay that gain from cost to FMV at transfer?
Again, thank you for my now needing to do my own research further.
This is WHY preparing tax returns is NOT "for anyone" just because they
can purchase sophisticated software
Excel can produce awesome highly technical results
But it starts out a fully blank cell screen
for the person with Knowledge to put Everything is CorrectlyComment
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