Dividing investment properties in a New Jersey divorce involves significant tax consequences. Both parties need to understand the tax implications to make informed decisions about property settlements. 

There are several things to consider when dividing these assets.

Capital gains tax

When a spouse sells an investment property, the sale may trigger capital gains tax. Calculate the gain by subtracting the property's original purchase price from the sale price. In New Jersey, capital gains face federal taxes, and state taxes on the proceeds may also apply. 

During a divorce, spouses can transfer property without immediately triggering capital gains, thanks to tax-free transfers between spouses. However, future sales may result in significant tax obligations for the new owner.

Property basis adjustments

Understanding the cost basis of an investment property is crucial. The cost basis includes the original purchase price and any capital improvements made over the years. This figure determines the taxable gain when selling the property. During a divorce, accurately adjust the cost basis if one spouse takes ownership of the property. Incorrect basis calculations can lead to unexpected tax liabilities later.

Tax considerations of buyouts

A buyout can serve as an alternative to selling the property. One spouse may decide to keep the investment property by buying out the other's share. This approach requires careful tax planning, as the buying spouse inherits the property's cost basis. If the property appreciates significantly, selling it later may lead to higher capital gains taxes than if sold during the divorce.

Seek professional guidance

Dividing investment properties requires careful attention to both state and federal tax laws. New Jersey couples should seek advice from a tax professional or attorney who can guide them through the process. 

Proper planning for investment property division helps avoid future tax surprises and ensures a fair division of assets during a New Jersey divorce.