Capital gains married filing separately

[Anonymous]

in a tenancy in common (co-owners without survivorship), each co-owner is taxable on the income attributable to the taxpayer's share. Co-owners who are joint tenants (with survivorship) split income from their property according to their ownership interest. 

Similarly, any gain (or loss) from sale of jointly-owned property is divided among the co-owners unless the joint ownership was created to save taxes on the sale, in which case the original owner is taxed on the full amount of the gain

this comes from RIA Federal Tax Handbook

so how is ownership interest determined?  that's usually done based on the amount each taxpayer contributed. 

[Whitewater]

I am interested in the last statement made here by DJS:

"In other states gains on assets that are jointly held can be allocated any way you like..."

I am in NC, and have reasons to want to file separately in the year that my wife and I will sell a second home (probably in 2021). I'd like to validate the statement we can allocate the gain "any way we like". If someone can provide an IRS reference, please share it. I've been searching and cannot locate anything to support (or dispute) this. Both of our names are on the property title. Ideally I'd like to allocate the gain something like 30% / 70% between the two returns.

[Anonymous]

what DJS said may apply for certain states. It does not apply for federal purposes.   see my previous comment. 

NC requires the same filing status as used on the federal return. 

[JoO5]

My spouse lives in DC and I technically moved to another mid-year for voting purposes. Neither state requires Form 8928 but would that help avoid misunderstandings about why our individual investment sale proceeds reports don't match the 1099-B forms? Should I allocate individual sales to one or the other of us or just split the totals?

[JoO5]

Can I get Form 8958 through TurboTax?

[DoninGA]

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@JoO5 wrote:

Can I get Form 8958 through TurboTax?

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See this TurboTax support FAQ for filing separately in a community property state - https://ttlc.intuit.com/community/married/help/married-filing-separately-in-community-property-state...

[joewh]

I live in MN, which is not a community property state and will be  filing separate returns, Federal and State.  I understand that I can divide an investment between the two returns, but the 1099-DIV and 1099-B come with my SS on them.  Do I need to inform the IRS that I am dividing them with my Spouse? 

Thanks

[Mike9241]

are both your names on the a/c - joint ownership? if not I there is no tax rule that would allow splitting in a non-community property state.  if a joint account, you should enter 100% on your return than on the 1099-div show a nominee distribution for the share allocated to the spouse, normally 50%, but say you put in 60% of the funds and spouse puy in 40% then a 60/40 split would seem appropriate.    since it is your spouse is reporting the other portion  you do not have to file a 1099-div for the nominee distribution 

[aes2]

Hello, I would be thrilled if you can help me understand the best approach. I am in the process of divorce. We live together there is no formal separation, I am in MA not a community state. We are selling our home but the timing of the sale could be controlled to happen this year in 2021 (will still be legally married and I can file married or married filing separate) or next year when we won't be married for the full year, and I will have to file HOH. 

1. The house was built for ~500K  (only 350K of that was mortgaged, and I am not sure how to prove cash expenditure from 15 years ago) and it is appraised at 1.8M. I will add all the additions possible for the basis calculation, but there will still be a large capital gain even with the allowable 500K deduction we will have close to 700K in taxable gains at 15% fed + 5.1x% state, NIIT, etc.

2. The house was built on property that was transferred by my inlaws using QuitClaim deed for $1. I believe if this were considered a gift I could include a basis of present-day value at the time of gift that would add 200K to the basis, but if  I have to carry their basis forward due to the transfer, it's not enough to make a difference they owned the property for a lifetime.

3. The property was transferred to me only and the deed (and mortgage) is only in my name - which I can see by this thread adds complexity at filing time. 

4. My fear is that because I am the only person on the deed, I will have to pay 100% of the capital gains on this property and only get half the revenue.  Unfortunately, this is a contested divorce and my spouse is not knowledgeable or cooperative. He has zero income, it would be fantastic to give the entire gain to him and pay no capital gains - which may be his reality on his half. 

Any insight you could offer would be appreciated. I need to figure out if this house needs to be sold before we are legally divorced and act quickly if so because it is October and we will not be married at the end of 2022 for sure. Thank you very much! 

[cjeff2023]

Sheesh! Sounds like you were married before the house was built, meaning you went through it together.  Agree with your future ex to work together to find out how to pay the least amount of taxes and split the proceeds.  Sounds like you are trying to pay the lowest tax AND take more proceeds.  I agree with adding up as much basis as you can support, pay the taxes split the profits and start your new life. I remember how you are feeling when I went through my divorce but sounds like you are setting yourself up for disappointment and divorce lawyer fees come to an agreement and give half. 

[Mike9241]

Hello, I would be thrilled if you can help me understand the best approach. I am in the process of divorce. We live together there is no formal separation, I am in MA not a community state. We are selling our home but the timing of the sale could be controlled to happen this year in 2021 (will still be legally married and I can file married or married filing separate) or next year when we won't be married for the full year, and I will have to file HOH.  Best to sell in the year you are still married and file a joint return.  if both of you have lived in the house for 2 years before sale you'll get the maximum $500,000 home sale exclusion. there is probably nothing that can be done about spouse getting half the proceeds that's a property settlement issue 

1. The house was built for ~500K  (only 350K of that was mortgaged, and I am not sure how to prove cash expenditure from 15 years ago) and it is appraised at 1.8M. I will add all the additions possible for the basis calculation, but there will still be a large capital gain even with the allowable 500K deduction we will have close to 700K in taxable gains at 15% fed + 5.1x% state, NIIT, etc. (mortgage does not affect basis)

2. The house was built on property that was transferred by my inlaws using QuitClaim deed for $1. I believe if this were considered a gift I could include a basis of present-day value at the time of gift that would add 200K to the basis, but if  I have to carry their basis forward due to the transfer, it's not enough to make a difference they owned the property for a lifetime. Sorry, but with a gift, your basis for gain is the lower of FMV on date of gift or donors basis. so it would be your in-laws' basis.  

3. The property was transferred to me only and the deed (and mortgage) is only in my name - which I can see by this thread adds complexity at filing time. Don't see an issue. 

4. My fear is that because I am the only person on the deed, I will have to pay 100% of the capital gains on this property and only get half the revenue.  Unfortunately, this is a contested divorce and my spouse is not knowledgeable or cooperative. He has zero income, it would be fantastic to give the entire gain to him and pay no capital gains - which may be his reality on his half.  if you sell after the divorce is final you will be the  one to report 100% of the sale (you would be the only owner at the time of sale), only get a $250K maximum exclusion and then end up having to give your ex 50% of the proceeds. 

[aes2]

Thank you so very much for the quick response! I have a further question related to this answer below -  if the house is not on the market and sold in this calendar year this will most likely be what happens. We will be divorced at some point in 2022, I will be the sole owner of the house and report the entire gain and lose 250K of the tax deduction. I know there seems to be a lot of language that can be added to the divorce decree to get around these issues but can this be avoided entirely by adding his name to the deed now? Thank you again!

4. My fear is that because I am the only person on the deed, I will have to pay 100% of the capital gains on this property and only get half the revenue.  Unfortunately, this is a contested divorce and my spouse is not knowledgeable or cooperative. He has zero income, it would be fantastic to give the entire gain to him and pay no capital gains - which may be his reality on his half.  if you sell after the divorce is final you will be the  one to report 100% of the sale (you would be the only owner at the time of sale), only get a $250K maximum exclusion and then end up having to give your ex 50% of the proceeds. 

[Mike9241]

I know there seems to be a lot of language that can be added to the divorce decree to get around these issues but can this be avoided entirely by adding his name to the deed now? Thank you again!   Maybe not. the IRS does not really care what a (non-tax) court says. it's what the tax laws say. If I remember correctly from your previous post title was transferred entirely to you. now you want to transfer back.  I have no Idea how the IRS would view this.

here's an example where courts and IRS disagree. the divorce decree says spouse A, the custodial parent,  gets to claim their dependent in even-numbered years. the other spouse gets to claim in odd-numbered years. the custodial parent does not furnish the non-custodial parent form 8332 and claims the dependent every year. the IRS says this is OK. what the courts would say is a matter for a lawyer but possible contempt of court is possible. 

[aes2]

Thank you for your response. I cannot transfer it back the person is no longer alive. I would just add my husband to the deed of our home so that he is a legal owner after we are divorced. That is what I am asking, if that would eliminate the problem. Thanks

[aes2]

This isn't about the divorce process or who is getting what it is about paying more taxes than we should because of a documentation issue.I am not looking for emotional support, I want tax advice. I don't want to do is lose his 250K deduction because of the way the deed is worded.