[m&emmom]

I have a new client (his CA retired). Entered into a marriage 8 years ago. He entered into the marriage with several rental properties as did she. Together they purchased a farm that became their principal residence, in both their names. They rent out the farm land. The husband has claimed the rental income 100% on his tax return (because that's what he wanted). After expenses this property has always had a significant loss which he was able to apply to the gains of his other properties. Now they are getting divorced. He would like to buy her out. Does she have to declare the capital gains now since all the rental has been 100% in his name or should he declare it all down the road when he sells.? I believe it has never been filed correctly and that the income/loss should have been split 50/50. I'm afraid if she declares the capital gains that Rev. Can may go back and reaccess the husbands returns. I figure since he has enjoyed the benefit of the loss 100% that he should also claim the gain down the road rather than switching it now.? Any ideas on this would be appreciated.

[Sujata]

m&emmom, on Jul 9 2008, 10:39 PM, said:

I have a new client (his CA retired). Entered into a marriage 8 years ago. He entered into the marriage with several rental properties as did she. Together they purchased a farm that became their principal residence, in both their names. They rent out the farm land. The husband has claimed the rental income 100% on his tax return (because that's what he wanted). After expenses this property has always had a significant loss which he was able to apply to the gains of his other properties. Now they are getting divorced. He would like to buy her out. Does she have to declare the capital gains now since all the rental has been 100% in his name or should he declare it all down the road when he sells.? I believe it has never been filed correctly and that the income/loss should have been split 50/50. I'm afraid if she declares the capital gains that Rev. Can may go back and reaccess the husbands returns. I figure since he has enjoyed the benefit of the loss 100% that he should also claim the gain down the road rather than switching it now.? Any ideas on this would be appreciated.

The income/loss should have been claimed in proportion to their beneficial ownership in the property.
50/50 may work for legal purposes when they divide the proprty on separation but is not allowed for tax purposes unless they actually contributed 50% each to the ACB of the property. The name on the deed has nothing to do with how the income is claimed for tax purposes.

[dunner]

Actually, if they're getting divorced, no one has to claim any capital gains as long as they get the property or properties in settlement of the matrimonial dispute (the ITA says the properties go to the respective ex's at ACB.