Question

Jerry and Sally were divorced under an agreement executed July 1, 2018. The terms of the agreement provide that Jerry will transfer to Sally his interest in a rental house worth $250,000 with a tax basis to Jerry of $80,000. What is the amount of the gain that must be recognized by Jerry on the transfer of the property and what is Sally's tax basis in the property after the transfer, respectively?

Answer 1

The answers are:

• Jerry must recognize $0 of gain on the transfer of the rental house
• Sally's tax basis is $80,000

Step-by-step explanation:

Capital gains taxes are usually excluded when you sell a house or transfer the house in a divorce settlement. The exclusion is up to $250,000 of capital gains.

Since Sally didn't buy the house, but received it as part of their divorce settlement from Jerry, the same cost basis will apply to Sally.