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Property division and its effect on taxes

For people in Michigan who have considerable assets, one element that should be seriously considered in the division of marital property is how it will affect their taxes. In most instances, the Journal of Accountancy points out that taxes will not be levied against property that is transferred to one spouse from another according to a written property settlement agreement. For example, if one spouse agrees to transfer a real estate property that is worth $5 million, the spouse is protected against a taxable gift transfer if the terms are in writing.

However, there are exceptions. Usually, a time-limit applies to such agreements and if property transfers occur after the expiration date, the Internal Revenue Service may be within its right to charge an estate or gift tax on the value of the property. On the other hand, if people can show that there was an agreement in place, and the transfer is directly related to that agreement and the property rights of the receiving spouse, they may be exempt.

The IRS has established that regardless of whether the property is taxable, the transfer must be reported in the annual filing and with the correct form. This includes loss or profit that the transfer generated. For example, if the property happens to be art, the increase of value on that art must be submitted. The same rule applies to rental income or dividends. Additionally, if people cannot produce a written settlement agreement, show that annual exclusion is applicable to the property or that the property transfer was made to fulfill spousal support, then they are required to report it under gift tax. 

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Lorrie J. Zahodnic

"I will hold you up until you can stand on your own two feet."

Lorrie J. Zahodnic, P.C. has provided skilled and compassionate legal guidance to Michiganders in family law matters for over 20 years.

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