Transfers of Property Between Spouses and Former Spouses—An Overview of Income Tax Issues and a Suggested Analytical Approach to Such Issues

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Title:
Transfers of Property Between Spouses and Former Spouses—An Overview of Income Tax Issues and a Suggested Analytical Approach to Such Issues
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Year: 
1990
Publication: 
Arkansas Law Notes
Volume: 
1990
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Start Page: 
1
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Language: 
English
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Abstract:

The flexibility a spouse or former spouse has over the tax consequences of  transferring cash or property depends on the parties’ knowledge of the tax consequences that may apply. Different scenarios are addressed regarding income tax responsibilities for transactions and payments between spouses. With some exceptions, most situations fall under two categories: “alimony” and “nonalimony.” Alimony consists of cash payments or separate maintenance payments between spouses or former spouses. The payor spouse can deduct the payment from the payor’s income tax record while the payee spouse must report the gain. Any situation not meeting alimony requirements is considered nonalimony. Nonalimony usually constitutes the transfer of property, in which case the transferor is not eligible for a deduction and the transferee will not be required to report the gain. The Internal Revenue Code, sections 71 and 215 apply to situations of alimony, while Section 1041 covers all nonalimony scenarios. Parties involved in such transactions need to be well-informed of their options. An analytical approach is the best way to avoid being held responsible for income gain that could have otherwise been avoided.

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