Separated spouses?

[quicksam]

I have clients that have been separated for all of 2006, and the husband has been renting a different home for that time.

She stayed in the home. The husband has been filing a schedule F for the last several years for horses and pecans.

He is on Social Security Disability and received a lump sum payment in 2006 of about $20000. It benefits them greatly to file separately, claiming the "did not live together one day provision" on the Social Security Benefits worksheet. She makes about $70,000 a year and this put a lot of his SS taxable. Filing separate as not living together keeps any of the SS from being taxable.

My question is about the farm. He says she lives on the farm now and that it is hers. He has
always claimed it on the schedule F on the MFJ return under his Social. There is depreciation that is still being rolled over. He wants to file it on her return since she operates the farm now in his absence.

If I was to file it this way would the depreciation just continue as always or would we have to start the depreciation new? If we have to start over would we just use his ending basis in the property as her beginning basis?

I'm inclined to tell him he just needs to claim the farm as always, but he insist she is the one running the farm and operating it.

Thanks

Lester

[outwest]

Couple of things..

Spouses can have unlimited gifting back and forth. Second, transfers incident to divorce are tax free.

Up until the divorce is final, these provisions make it easy to transfer homes, property or even businesses between the spouses. If she is living on the farm and taking care of it, it looks like he has transferred the farm as the price of getting out. What has been done in the past is past. I think you can file as he wishes.