All videos are provided for informational purposes only. Some videos are primarily California focused. Content is not intended for and should not be construed as legal advice. Servicing Only San Diego County - If your family law case is in San Diego County, please contact the Men's Legal Center. If your family law case is outside of San Diego County, please contact a licensed attorney in your area.
Untying the Knot is brought to you by the Men's Legal Center and was created to be an information resource to anyone going through a family law and divorce process. Each video is produced by a California Certified Family Law attorney and his team who each have decades of knowledge and experience.
Often in dividing the marital assets, the parties do not consider the tax basis of
the asset. The parties look at the present value of the asset and divide the asset
according to the present value minus any debt. However, upon closer scrutiny, the
parties should at least take into consideration the tax basis of the asset. The key assets
of a marriage are normally the house and pensions. We will assume that the house was
purchased during marriage.
So, if one spouse is receiving the house, he/she should analyze the tax basis,
not just the net equity i.e., the value minus the mortgage. This includes the years of
depreciation taken on the house, as well as costs associated with home improvements
and/or maintenance.
Sometimes a couple has acquired rental properties (a business) during the
marriage. The tax code allows the owners of rental property to depreciate the cost of the
purchase price and improvements over several years. Depreciation commences as
soon as the property is placed in service or available to use as a rental. Under the tax
code, most U.S. residential rental property is depreciated at a rate of 3.636% each year
for 27.5 years. Depreciation is in addition to normal rental property expenses which can
be deducted from the rental income in the year the money is spent.
Depreciation is a valuable tool if you invest in rental properties as it allows you to
reduce each year’s tax bill. The IRS allows the owner to spread out the cost of buying
the property over decades. Unfortunately, if you depreciate property, then sell it for
more than its depreciated value, you'll owe tax on that gain through the depreciation
recapture tax, which is the gain realized by the sale price of the property that must be
reported as ordinary income. It is assessed when the sale price of an asset exceeds
the tax basis or adjusted cost basis. The difference between these figures is thus
"recaptured" as ordinary income for tax purposes.
Finally, if part of your divorce negotiations means you will receive the family
residence or rental property, consult with your tax accountant. Factor in your future tax
liability in the negotiations. Be prepared if the family court judge does not take this
issue into account in dividing up the assets. The tax liability of the property which is not
being sold in the immediate future.
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10 май 2023
