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When one spouse buys the other's share of a house, in a divorce, does the buyer get a stepped up basis?
Assets were split up - rather than sell on the open market - spouses negotiate a generous buy out. They bought the house a couple years before the marriage as partners. It was not negotiated as part of a seperation of assets, but as purchase.
1 Answer
- 1 decade agoFavorite Answer
My inclination is that the basis would be what the buying spouse paid for the house. You'll probably want to check the IRS rules relating to divorces because they may not care that it was negotiated as a purchase. Generally, a person's basis is what was paid for the house. If the IRS doesn't disallow the transaction due to the divorce, the basis should be as follows:
1/2 of original cost plus 100% of amount paid for spouse's half.
For example, if the house cost $500K and is now worth $800K, using this analysis, the buying spouse's basis is $250K + $150K if she paid $150K to buy out the other spouse. Keep in mind basis is less important if you can use the capital gains exemption for principal residents. Also, if this analysis is correct, the selling spouse has a capital gain that may or may not be taxable (depending on the availability of the principal residence exemption).
You really need to hire an accountant to look at this or ask your divorce lawyer. He should know the answer to this.
