How to Treat Transfers Between Spouses for Tax Purposes
The transfer of property between spouses, or former spouses, doesn't generally result in a recognized tax gain or loss. When property is transferred to a third party by one spouse for the benefit of the other spouse, it's treated as two transactions that may result in a gain or loss.
Exclude any gain or loss from taxable income that relates to property that is transferred to a spouse. This also applies to a former spouse if the transfer is incident to a divorce.
Include in the category of nonrecognition property all real estate property or personal property, whether it is tangible or intangible. However, the nonrecognition rule doesn't include services.
Determine that the property transfer meets the incident to divorce requirements. The property transfer must occur within 1 year after the end of your marriage and is in regard to your divorce or annulment.
Divide tax responsibility between you and your spouse. Transfer of income-producing property to your spouse during the year will result in taxable income to you for any income received up to the date of the transfer. Your spouse will be required to report any income received after the date the property is transferred.
- Requests by your spouse, or former spouse, to transfer property to a third party on their behalf is considered to be two separate transactions for tax purposes. The first is a transfer from you to your spouse on which no gain or loss is recognized. The second transfer, from your spouse to the third party, may result in recognized gain or loss.