12: Tax Carry-forwards Negotiations During a Divorce
This is the twelfth installment of “Divorce. What You Need to Think About from a Financial Perspective“, which can be downloaded for FREE from makara-assoc.com.
Tax carry-forwards are another area to consider before or after the marital settlement is finalized. Depending on the size of these carry-forward(s) and the relationship with your ex-spouse, it may make sense to complete this negotiation prior to signing the martial settlement.
Some of the carry-forwards are governed by IRC regulations. These include:
- Capital losses
- Charitable contributions
- Net operating losses
These are apportioned between spouses, and the amount is figured in a ratio based on what separate carry-forwards would have been, if separate returns were filed. Carry-forwards that are not governed by IRC regulations include:
- Alternative minimum and general business tax credits
- Investment interest expense
These carry-forwards should be allocated in a reasonable way. This is usually traced back to the spouse that generated the credit or follows the asset as defined in the marital settlement.
If you and your ex-spouse took advantage of the first time home buyers credit under the American Recovery and Reinvestment Act of 2009, the recapture provision does come into play with a divorce. Recapture is not triggered in the event of a divorce and the transfer of a principle residence.
Instead the spouse that becomes full owner will be subject to the recapture provisions set out in the Act, if the home is sold with the 36-month recapture period. If the home was purchased between April 9, 2008 and December 31, 2008 the credit must be repaid over 15 years, divorce does not accelerate the repayment. However, the spouse receiving the home is fully responsible for the entire payments still due.
Understanding the American Recovery and Reinvestment Act of 2009 and the IRC regulations when considering tax carry-forwards can require assistance from a Certified Public Accountant.
Interested in finding out more about divorce planning? Click on the eBook: “Divorce. What You Need to Think About from a Financial Perspective“ on the right to download it FREE from our website. Need further assistance, email us or call (239) 384-9688 (Naples) or (239) 768-5008 in (Fort Myers).
Have a Happy Thanksgiving,
-Mark
This information is based on facts, assumptions and representations as stated and authorities that are subject to change. We will not update this information for subsequent legislative or administrative changes of future judicial interpretations.
LEGAL NOTICE AND DISCLAIMER: The information within this blog is for informational and educational purposes only and is not tax advice and should not be used as such. The facts of each individual situation can have significantly different outcomes when applying tax law. The hiring of a CPA is an important decision not to be based solely on advertisements.
