H and W divorced six months ago.W is supposed to get H's Picasso painting, which he had bought for $20,000.At the time of transfer to W, the work of Picasso is valued at $100,000.Which of the following tax consequences would occur?

Question

Quizplus · Accepted Answer

When a divorcing couple transfers property between themselves as part of a divorce settlement, the transfer is generally tax-free. However, the recipient of the property takes over the basis of the transferor. In this case, W took over H's basis in the Picasso painting, which was $20,000. When she later sells it for $100,000, she will have a taxable gain of $80,000 ($100,000 - $20,000). Therefore, the correct answer is C - W has a $20,000 taxable gain.

H and W Divorced Six Months Ago