Tax Basis

Here are answers from members of the Maryland Association of Certified Public Accountants to readers' tax questions. The Sun will publish answers through April 15.Q: Where do I deduct the foreign tax paid on dividends of a foreign stock held as an American Depositary Receipt?A: An individual taxpayer can deduct only foreign taxes paid on dividends on a foreign stock on line 7 (other taxes) of Schedule A, Itemized Deductions. However, not every taxpayer will have enough total deductions to receive a benefit from itemizing and will have to just take the standard deduction.

Q: In a divorce, how is the income tax basis of the couple's home handled if one spouse keeps the house and the other spouse is cashed out of his equity?What happens to the property tax assessment of the house if the selling spouse is cashed out at a far higher value than what the house is assessed?Is the spouse who stays in the house subject to an increase in property taxes just for continuing to live there?A: A divorce does not change the income tax basis or the property tax assessment of a couple's home in any way.If one spouse keeps the house as part of the property settlement, the value assigned to the half of the house given up by the other spouse is irrelevant to the home's actual tax basis.

Q: My wife and I own a duplex with a $160,000 tax basis and a $1 million market value. Upon the death of the first of us, our daughter will inherit the deceased's half of the property. What will her tax basis be?-H.B.A: Your daughter's share will be valued as of the date of death of the deceased. If the property is worth $1 million at that time, her tax basis would be $500,000.A question that you did not ask is what will be the value of the surviving spouse's share? If the property is held in joint tenancy, the survivor's share is set at half the original tax basis, or $80,000.

Q: I still do not understand the difference between community property and joint tenancy. My wife, age 55, and I, age 70, hold our home as joint tenants, but our friends insist that we change it to community property. Should we?A: There are considerable advantages to holding your home and other assets as community property rather than as joint tenants. Although holding as joint tenants may avoid probate upon the death of one spouse, any savings in time and costs may be more than offset by the loss of the principal advantage of community property, which is a step-up in value for 100 percent of all marital assets to the decedent's date of death.