To understand how this transfer affects Harry and Mary, as well as Mary's basis in the stock, we need to consider the concept of basis in an asset.
Basis refers to the original value of an asset, usually used for tax purposes. It helps determine the gain or loss when the asset is sold or transferred. The basis can be adjusted due to various factors, such as additions or subtractions to the original investment.
In this case, Harry is transferring GM stock to Mary as part of their divorce agreement. The market value of the stock is $30,000, and Harry initially invested $20,000 in it.
To determine Harry's tax consequences when transferring the stock, we need to understand if it is a taxable event or if it falls under the tax-free transfer rules for divorces.
In a divorce agreement, assets transferred as part of the settlement are generally tax-free events. That means Harry would not incur any immediate tax liability upon transferring the GM stock to Mary. So, from a tax perspective, Harry's position remains unchanged.
Now, let's determine Mary's basis in the stock following the transfer. Typically, when an asset is acquired through a tax-free transfer, the recipient's basis is carried over from the transferor's basis. In other words, Mary's basis in the GM stock would be the same as Harry's original basis.
Therefore, Mary's basis in the GM stock would also be $20,000, which is the amount Harry initially invested in the stock.
It's important to note that tax laws can be complex and subject to change. It's always a good idea to consult a tax professional or accountant to ensure accurate information and advice specific to your situation.