CDA Tax Implications of Divorce 3

Question 1

When one spouse transfers appreciated property to the other as part of a divorce settlement, what are the immediate tax consequences?

Accepted Answer

No gain or loss is recognized by either spouse at the time of transfer

Answer

Under IRC Section 1041, transfers between spouses incident to divorce are tax-free; no gain or loss is recognized at the time of transfer.

Question 2

What carryover basis rule applies when property is received from a spouse as part of a divorce settlement?

Accepted Answer

The receiving spouse takes the transferring spouse's original adjusted basis

Answer

The recipient spouse takes over the transferring spouse's adjusted basis (carryover basis), meaning future gains include all prior appreciation.

Question 3

A couple sells their jointly-owned primary residence as part of their divorce. They lived there as their primary home for 3 of the last 5 years. How much capital gain can they jointly exclude?

Accepted Answer

$500,000 total (up to $250,000 each)

Answer

Married couples filing jointly can exclude up to $500,000 of gain on a primary residence sale, provided both meet the use and ownership tests.

Question 4

After divorce, one spouse retains the marital home and sells it two years later. They lived there as their primary residence for 4 of the last 5 years. What is their maximum capital gain exclusion?

Accepted Answer

$250,000

Answer

A single taxpayer who meets the 2-of-5-year ownership and use tests can exclude up to $250,000 of gain from the sale of their primary residence.

Question 5

One divorced spouse receives the family home but cannot sell it for several years. In the meantime, the home depreciates in value. What tax planning concern should the CDA highlight?

Accepted Answer

Capital losses on the sale of a personal residence are not deductible, so any decrease in value below the carryover basis is a permanent loss

Answer

Losses on the sale of personal-use property (like a primary residence) are not deductible, so if the home is sold below carryover basis, the loss cannot be used to offset taxes.

(CDA) Certified Divorce Advisor Practice Test

(CDA) Certified Divorce Advisor Practice Test

CDA Tax Implications of Divorce 3