Divorce and Taxes: Non-Capital Gains Assets

by Norris Law Group on September 17, 2014

Divorce and Taxes: Non-Capital Gains AssetsAs you go through the property division phase of a divorce, the last thing on your mind may be concerns about taxes that may be incurred on any assets that a judge may award to you. It is something to consider, though; even if property you receive may not be taxed right away—or at all—it may be a good idea to at least understand the tax implications that may come along with your divorce.

MarketWatch, a Wall Street Journal site, breaks down five factors regarding divorce and taxes. In our previous installment looks at how the “tax-free transfer rule” may apply to property in a divorce. In this post, we cover the transfer of “non-capital gains assets.”

Factor #3: Transfers of Assets with No Capital Gains

For a while, the IRS maintained that the tax-free transfer rule applies only to any assets that incur capital gains taxes. For example, if you gave Certificates of Deposit (CD’s) including accrued interest to your former spouse, the IRS asked you to report only the difference between fair market value and basis as “ordinary income” on the date of transfer as part of Form 1040 for that tax year. More simply put, you would still pay tax on the CD’s although your ex-spouse actually received the asset itself. But now, the IRS seems to conclude that most ordinary income assets can be transferred to an ex-spouse tax-free. The receiving spouse then must report the income if and when the asset is sold or turned into cash (or exercised, if the asset is stock options).

Attorney Graham Norris and his associates at the Norris Law Group serve the residents of Utah County, UT and throughout Utah, Wyoming and Idaho. Contact them today at 801-932-1238 or online for a free consultation.

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