Question

Nell and Kirby are in the process of negotiating their divorce agreement. What should be the tax consequences to Nell and Kirby if the following, considered individually, became part of the agreement?
a. In consideration for her one-half interest in their personal residence, Kirby will transfer to Nell stock with a value of $200,000 and $50,000 of cash. Kirby's cost of the stock was $150,000, and the value of the personal residence is $500,000. They purchased the residence three years ago for $300,000.
Nell's basis for the stock is _______$ X
Kirby's basis in the house is ______$ X
b. Nell will receive $1,000 per month for 120 months. If she dies before receiving all 120 payments, the remaining payments will be made to her estate.
The payments (qualify, do not qualify) as alimony and are (included in, excluded from) Nell's gross income as they are received.
c. Nell is to have custody of their 12-year-old son, Bobby. She is to receive $1,200 per month until Bobby (1) dies or (2) attains age 21 (whichever occurs first). After either of these events occurs, Nell will receive only $300 per month for the remainder of her life.
$ X per month is alimony that is (included in, excluded from) Nell's gross income, and the remaining $ X per month is considered​(child support, property settlement) and is (nontaxable, taxable) to Nell.

Answer 1

Answer:

a. In consideration for her one-half interest in their personal residence, Kirby will transfer to Nell stock with a value of $200,000 and $50,000 of cash. Kirby's cost of the stock was $150,000, and the value of the personal residence is $500,000. They purchased the residence three years ago for $300,000.

Nell's basis for the stock is $150,000

Kirby's basis in the house is $300,000

The transfer of property due to divorce is nontaxable. The $50,000 that Nell receives is generally considered alimony (for tax purposes).

b. Nell will receive $1,000 per month for 120 months. If she dies before receiving all 120 payments, the remaining payments will be made to her estate.

The payments NOT QUALIFY as alimony and are EXCLUDED FROM Nell's gross income as they are received.

The TC&JA changed alimony rules and made them not deductible for the spouse that gives it, and not taxable for the spouse that receives it. It now works in a similar manner than child support. It doesn't make any difference now if payments are alimony or not.

c. Nell is to have custody of their 12-year-old son, Bobby. She is to receive $1,200 per month until Bobby (1) dies or (2) attains age 21 (whichever occurs first). After either of these events occurs, Nell will receive only $300 per month for the remainder of her life.

$300 per month is alimony that is EXCLUDED FROM Nell's gross income, and the remaining $900 per month is considered​ CHILD SUPPORT and is NONTAXABLE to Nell.

Again, the TC&JA changed the rules, so alimony received is not taxable.