Hey Income Tax Gurus....

[Zennie 0]

... I got a good one for ya.

OK. Here's the deal.

Liz & I get divorced. Liz wants to keep the house. I want my share of the equity.

So as part of the property division agreement she agrees to pay me $X which represents approximately half the equity we had in the house (i.e. current market valie - principal) and she refinances.

I am in the process of buying my own place. I'm getting 100% financing, so I don't need (or want) to put any of that payout down. My new place costs more than the old house when we bought it.

So the big question is, is that $X taxable income?

As I understand it, property divisions in a divorce are non-taxable. can accrued equity fall under that exemption? There's also a $250,000 exemption for the sale of a primary residence, but would an equity payout/refi qualify as a "sale"? Would it be a capital gain?

Seems like only the latter would make it a taxable event, but it seems more in line with one of the first two.

So whaddaya think? Do I owe taxes on the payout or can I get a legit exemption that won't result in an audit?

- Z
"Always be yourself... unless you suck." - Joss Whedon

[mikkif 0]

Two words: tax accountant.

Seriously, this and brain surgery, leave it to the professionals.

Freedom -- Expression -- Spirit

[mac266 0]

i did tax awhile ago - for my sins in a past life i am an accountant!!! but dont touch tax - dont know what te US tax laws are but here I THINK that it would be treated as a capital gain with the yearly allowance attached to it - but hey I sat tax exams and never touched tax again - and im in the UK and not US so basically my post is complete bollox and no use to you or anyone else - oh well bored at home and injured so needed somthing to do!!!!


Be Safe............. be a sick perverted b4stard making a living out of an interest in taxation!errrrrr

M

[MikeMcLean 0]

> Liz & I get divorced.

"Getting" or "Got" Divorced -- makes a big difference.

The equity payout/refinance isn't a sale, you are simply borrowing against a "paper" gain. The gain isn't actualized until you sell, which implies you neither have the house title nor an associated loan. The timing of this transaction compared to your divorce date is the key.

If you refinance as a legally married couple and you subsequently get divorced then whatever equity cash out you take is non-taxable at that time. When you divorce and one party keeps the house and one keeps the cash, then that is your "equitable division of marital assets."

Liz will eventually pay tax on the total net gain at the time she sells the house and this will be a combination of the "marital" gain and the "single" gain (and may even be a loss depending on the real-estate market. This gain is subject to the sale of primary home exemption, or can be rolled-over into a new primary residence depending on what she does living arrangement wise after the sale.

If, OTOH, you divorce first with Liz keeping the house, then the non-taxable division of property occurs on the divorce date. Any money Liz gives you after that could be considered alimony and be taxable.

Standard disclaimer -- I am not a tax attorney, nor a CPA, nor a tax professional. Nothing in this message should be considered a substitute for the knowledge and insight of a lawyer. Each case is different and individual attention should be given for all legal matters. It is highly recommended that you obtain professional counsel before acting upon any information that appears in this post.

P.S. interesting commentary; the words refinance, actualized, and CPA are not in the dz.com spelling dictionary.

It wouldn't hurt you to think like a fucking serial killer every once in a while - just for the sake of prevention

[JohnnyD 0]

If it is part of a court agreement, you may really be screwed.

[Zennie 0]

Well, then I may really be screwed.

The payment was both subsequent to the divorce and part of the property division agreement filed with the court.

Thing is, Texas is a community property state, not an alimony state. This was all part of the equitable division of community property.

Guess I'll be paying an accountant/tax attorney to help me out on this one.

- Z
"Always be yourself... unless you suck." - Joss Whedon

[JohnnyD 0]

By whatever means, Mike McLean has obviously acquired some wisdom. I would recommend this: contact the IRS. They have an 800 number and everything. Best thing is their advice is free and pretty much always right.

[JohnnyD 0]

Bump.
I have the answer for this (through unrelated research).

PM me if you are interested.