Planning for divorce and understanding tax considerations, I found this TurboTax article helpful:
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Hello! Savoyboy,
Thank you for your question. As you already noted, there is neither gain nor loss recognized on transfers of property between spouses in a divorce. However, as I understand your situation, you are planning on redeeming stock and then transferring the half of the value to your ex-spouse and want to know which of you are responsible for the tax on the redemption of these shares. This situation has been addressed in the tax regulations and you may actually be able to elect how these shares are taxed and who bears the burden.
I recommend you consult your attorney and someone with knowledge of Regs. Secs. 1.1041-2(c)(1) and (2)), which effectively permits taxpayers to choose how divorce-related stock redemptions will be taxed.
Hello! Savoyboy,
Thank you for your question. As you already noted, there is neither gain nor loss recognized on transfers of property between spouses in a divorce. However, as I understand your situation, you are planning on redeeming stock and then transferring the half of the value to your ex-spouse and want to know which of you are responsible for the tax on the redemption of these shares. This situation has been addressed in the tax regulations and you may actually be able to elect how these shares are taxed and who bears the burden.
I recommend you consult your attorney and someone with knowledge of Regs. Secs. 1.1041-2(c)(1) and (2)), which effectively permits taxpayers to choose how divorce-related stock redemptions will be taxed.
Good day Savoyboy,
Without having all the details of the stock plan (ISO, RSU, ESP) this is difficult to answer.
Some element of basis for the stock may be included in your W2 as ordinary income. That amount will be counted as basis in the transferred stock. As your former spouse will be getting benefit of the basis that is included in your income and you are paying tax on; you may want to discuss this with your attorney. After the stock is transferred; your former spouse would be responsible for the tax on any sale of the stock that has been transferred to them.
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