Publication 504
taxmap/pubs/p504-005.htm#en_us_publink1000176028Generally, there is no recognized gain or loss on the transfer
of property between spouses, or between former spouses if the transfer is
because of a divorce. You may, however, have to report the transaction on a gift
tax return. See
Gift Tax on Property Settlements, later. If you sell property that you own jointly to split
the proceeds as part of your property settlement, see
Sale of Jointly-Owned Property, later.
Generally, no gain or loss is recognized on a transfer of property
from you to (or in trust for the benefit of):
- Your spouse, or
- Your former spouse, but only if the transfer is incident to
your divorce.
This rule applies even if the transfer was in exchange for cash,
the release of marital rights, the assumption of liabilities, or other
consideration.
This rule does not apply in the following situations.
- Your spouse or former spouse is a nonresident alien.
- Certain transfers in trust, discussed
later.
- Certain stock redemptions under a divorce or separation instrument
or a valid written agreement that are taxable under applicable tax law, as
discussed in Regulations section 1.1041-2.
The term "property" includes all property whether real or personal,
tangible or intangible, or separate or community. It includes property acquired
after the end of your marriage and transferred to your former spouse. It does
not include services.
taxmap/pubs/p504-005.htm#en_us_publink1000176035If you transfer your interest in an HSA to your spouse or former
spouse under a divorce or separation instrument, it is not considered a taxable
transfer. After the transfer, the interest is treated as your spouse's HSA.
taxmap/pubs/p504-005.htm#en_us_publink1000176036If you transfer your interest in an Archer MSA to your spouse
or former spouse under a divorce or separation instrument, it is not considered
a taxable transfer. After the transfer, the interest is treated as your spouse's
Archer MSA.
taxmap/pubs/p504-005.htm#en_us_publink1000176037taxmap/pubs/p504-005.htm#en_us_publink1000176040A property transfer is incident to your divorce if the transfer:
- Occurs within 1 year after the date your marriage ends, or
- Is related to the ending of your marriage.
A divorce, for this purpose, includes the ending of your marriage
by annulment or due to violations of state laws.
A property transfer is related to the ending of your marriage
if both of the following conditions apply.
- The transfer is made under your original or modified divorce
or separation instrument.
- The transfer occurs within 6 years after the date your marriage
ends.
Unless these conditions are met, the transfer is presumed not
to be related to the ending of your marriage. However, this presumption will not
apply if you can show that the transfer was made to carry out the division of
property owned by you and your spouse at the time your marriage ended. For
example, the presumption will not apply if you can show that the transfer was
made more than 6 years after the end of your marriage because of business or
legal factors which prevented earlier transfer of the property and the transfer
was made promptly after those factors were taken care of.
taxmap/pubs/p504-005.htm#en_us_publink1000176042If you transfer property to a third party on behalf of your spouse
(or former spouse, if incident to your divorce), the transfer is treated as two
transfers.
- A transfer of the property from you to your spouse or former
spouse.
- An immediate transfer of the property from your spouse or
former spouse to the third party.
You do not recognize gain or loss on the first transfer. Instead,
your spouse or former spouse may have to recognize gain or loss on the second
transfer.
For this treatment to apply, the transfer from you to the third
party must be one of the following.
- Required by your divorce or separation instrument.
- Requested in writing by your spouse or former spouse.
- Consented to in writing by your spouse or former spouse. The
consent must state that both you and your spouse or former spouse intend the
transfer to be treated as a transfer from you to your spouse or former spouse
subject to the rules of Internal Revenue Code section 1041. You must receive the
consent before filing your tax return for the year you transfer the property.
 | This treatment does not apply to transfers to which Regulations
section 1.1041-2 (certain stock redemptions) applies. |
taxmap/pubs/p504-005.htm#en_us_publink1000176044If you make a transfer of property in trust for the benefit of
your spouse (or former spouse, if incident to your divorce), you generally do
not recognize any gain or loss.
However, you must recognize gain or loss if, incident to your
divorce, you transfer an installment obligation in trust for the benefit of your
former spouse. For information on the disposition of an installment obligation,
see Publication 537, Installment Sales.
You also must recognize as gain on the transfer of property in
trust the amount by which the liabilities assumed by the trust, plus the
liabilities to which the property is subject, exceed the total of your adjusted
basis in the transferred property.
taxmap/pubs/p504-005.htm#en_us_publink1000176045You own property with a fair market value of $12,000 and an adjusted
basis of $1,000. You transfer the property in trust for the benefit of your
spouse. The trust did not assume any liabilities. The property is subject to a
$5,000 liability. Your recognized gain is $4,000 ($5,000 − $1,000).
taxmap/pubs/p504-005.htm#en_us_publink1000176046You should report income from property transferred to your spouse
or former spouse as shown in
Table 5, earlier.
For information on the treatment of interest on transferred U.S.
savings bonds, see chapter 1 of Publication 550, Investment Income and Expenses.
 | When you transfer property to your spouse (or former spouse,
if incident to your divorce), you must give your spouse sufficient records to
determine the adjusted basis and holding period of the property on the date of
the transfer. If you transfer investment credit property with recapture
potential, you also must provide sufficient records to determine the amount and
period of the recapture.
|
taxmap/pubs/p504-005.htm#en_us_publink1000176049Property you receive from your spouse (or former spouse, if the
transfer is incident to your divorce) is treated as acquired by gift for income
tax purposes. Its value is not taxable to you.
taxmap/pubs/p504-005.htm#en_us_publink1000176050Your 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.
This rule generally applies to all property received after July
18, 1984, under a divorce or separation instrument in effect after that date. It
also applies to all other property received after 1983 for which you and your
spouse (or former spouse) made a "section 1041 election" to apply this rule. For
information about how to make that election, see Temporary Regulations section
1.1041-1T(g).
taxmap/pubs/p504-005.htm#en_us_publink1000176051Karen and Don owned their home jointly. Karen transferred her
interest in the home to Don as part of their property settlement when they
divorced last year. Don's basis in the interest received from Karen is her
adjusted basis in the home. His total basis in the home is their joint adjusted
basis.
taxmap/pubs/p504-005.htm#en_us_publink1000176052Your 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.
taxmap/pubs/p504-005.htm#en_us_publink1000176053 |
Table 5. Property Transferred Pursuant to Divorce
The tax treatment of items of property transferred from
you to your spouse or former spouse pursuant to your divorce is shown below.
| IF you transfer ... | THEN you ... | AND your spouse or former spouse ... | FOR more information,
see ... | | | income-producing property (such as an interest in a business,
rental property, stocks, or bonds) | include on your tax return any profit or loss, rental
income or loss, dividends, or interest generated or derived from the property
during the year until the property is transferred
| reports any income or loss generated or derived after
the property is transferred.
| Publication 550, Investment Income and Expenses. (See
Ownership transferred under
U. S. Savings Bonds in chapter 1.)
| | | | interest in a passive activity with unused passive activity
losses | cannot deduct your accumulated unused passive activity
losses allocable to the interest | increases the adjusted basis of the transferred interest
by the amount of the unused losses.
| Publication 925, Passive Activity and At-Risk Rules. | | | | investment credit property with recapture potential | do not have to recapture any part of the credit | may have to recapture part of the credit if he or she
disposes of the property or changes its use before the end of the recapture
period.
| Form 4255, Recapture of Investment Credit. | | | | interests in nonstatutory stock options and nonqualified
deferred compensation | do not include any amount in gross income upon the transfer | includes an amount in gross income when he or she exercises
the stock options or when the deferred compensation is paid or made available to
him or her.
| |
|
|
taxmap/pubs/p504-005.htm#en_us_publink1000176055Larry and Gina owned their home jointly before their divorce
in 1983. That year, Gina received Larry's interest in the home in settlement of
her marital support rights. Gina's basis in the interest received from Larry is
the part of the home's fair market value proportionate to that interest. Her
total basis in the home is that part of the fair market value plus her adjusted
basis in her own interest.
taxmap/pubs/p504-005.htm#en_us_publink1000176056If the transferor recognizes gain on property transferred in
trust, as described earlier under
Transfers in trust, the trust's basis in the property is increased by the recognized
gain.
Your spouse transfers property in trust, recognizing a $4,000
gain. Your spouse's adjusted basis in the property was $1,000. The trust's basis
in the property is $5,000 ($1,000 + $4,000).
taxmap/pubs/p504-005.htm#en_us_publink1000176059The federal gift tax does not apply to most transfers of property
between spouses, or between former spouses because of divorce. The transfers
usually qualify for one or more of the exceptions explained in this discussion.
However, if your transfer of property does not qualify for an exception, or
qualifies only in part, you must report it on a gift tax return. See
Gift Tax Return, later.
For more information about the federal gift tax, see Publication
950, Introduction to Estate and Gift Taxes, and Form 709 and its instructions.
taxmap/pubs/p504-005.htm#en_us_publink1000176061Your transfer of property to your spouse or former spouse is
not subject to gift tax if it meets any of the following exceptions.
- It is made in settlement of marital support rights.
- It qualifies for the marital deduction.
- It is made under a divorce decree.
- It is made under a written agreement, and you are divorced
within a specified period.
- It qualifies for the annual exclusion.
A transfer in settlement of marital support rights is not subject
to gift tax to the extent the value of the property transferred is not more than
the value of those rights. This exception does not apply to a transfer in
settlement of dower, curtesy, or other material property rights.
taxmap/pubs/p504-005.htm#en_us_publink1000176063A transfer of property to your spouse before receiving a final
decree of divorce or separate maintenance is not subject to gift tax. However,
this exception does not apply to:
- Transfers of certain terminable interests, or
- Transfers to your spouse if your spouse is not a U.S. citizen.
A transfer of property under the decree of a divorce court having
the power to prescribe a property settlement is not subject to gift tax. This
exception also applies to a property settlement agreed on before the divorce if
it was made part of or approved by the decree.
taxmap/pubs/p504-005.htm#en_us_publink1000176065A transfer of property under a written agreement in settlement
of marital rights or to provide a reasonable child support allowance is not
subject to gift tax if you are divorced within the 3-year period beginning 1
year before and ending 2 years after the date of the agreement. This exception
applies whether or not the agreement is part of or approved by the divorce
decree.
taxmap/pubs/p504-005.htm#en_us_publink1000176066The first $13,000 of gifts of present interests to each person
during 2010 is not subject to gift tax. The annual exclusion is $134,000 for
transfers to a spouse who is not a U.S. citizen provided the gift would
otherwise qualify for the gift tax marital deduction if the donee were a U.S.
citizen.
taxmap/pubs/p504-005.htm#en_us_publink1000176067A gift is considered a present interest if the donee has unrestricted
rights to the immediate use, possession, and enjoyment of the property or income
from the property.
taxmap/pubs/p504-005.htm#en_us_publink1000176068Report a transfer of property subject to gift tax on Form 709.
Generally, Form 709 is due April 15 following the year of the transfer.
taxmap/pubs/p504-005.htm#en_us_publink1000176069If a property transfer would be subject to gift tax except that
it is made under a written agreement, and you do not receive a final decree of
divorce by the due date for filing the gift tax return, you must report the
transfer on Form 709 and attach a copy of your written agreement. The transfer
will be treated as not subject to the gift tax until the final decree of divorce
is granted, but no longer than 2 years after the effective date of the written
agreement.
Within 60 days after you receive a final decree of divorce, send
a certified copy of the decree to the IRS office where you filed Form 709.
taxmap/pubs/p504-005.htm#en_us_publink1000176070If you sell property that you and your spouse own jointly, you
must report your share of the recognized gain or loss on your income tax return
for the year of the sale. Your share of the gain or loss is determined by your
state law governing ownership of property. For information on reporting gain or
loss, see Publication 544.
taxmap/pubs/p504-005.htm#en_us_publink1000176071If you sold your main home, you may be able to exclude up to
$250,000 (up to $500,000 if you and your spouse file a joint return) of gain on
the sale. For more information, including special rules that apply to separated
and divorced individuals selling a main home, see Publication 523, Selling Your
Home.
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