George and Georgette divorced last year.George was ordered to pay (and does pay)Georgette $600 per month alimony and $800 per month child support.In addition,George transferred title to his half of their stock to Georgette last year.The stock had a basis of $120,000 and a fair market value of $260,000 at the date of the transfer.This year Georgette sells the stock for $280,000.What is Georgette's income for this year if she has no other income items?
A)$7,200
B)$19,200
C)$159,200
D)$167,200

Question

Quizplus · Accepted Answer

Georgette's income for this year consists of the alimony, child support, and the gain from the sale of the stock.

The alimony and child support payments are not taxable income to Georgette, so we only need to consider the gain from the sale of the stock.

Georgette received the stock as part of a property settlement incident to the divorce, which means the transfer was not a taxable event. Georgette's basis in the stock is equal to its adjusted basis in the hands of George ($120,000), so her gain on the sale is $160,000 ($280,000 - $120,000).

Since Georgette has no other income items, her taxable income is equal to her total income. Therefore, her taxable income for the year is $167,200 ($600 x 12 months alimony + $800 x 12 months child support + $160,000 gain from the sale of the stock).

The correct answer is D.

George and Georgette Divorced Last Year