Travis and Andrea were divorced.Their only marital property consisted of a personal residence (fair market value of $400,000,cost of $200,000),and publicly-traded stocks (fair market value of $800,000,cost basis of $500,000).Under the terms of the divorce agreement,Andrea received the personal residence and Travis received the stocks.In addition,Andrea was to receive $50,000 for eight years.

Question

Quizplus · Accepted Answer

To qualify as alimony,the cash payments must cease upon the death of the payee;therefore,option I is incorrect.The basis of the marital property received by a former spouse is the same as the former married couple's basis.Therefore,Travis' basis in the stocks was $500,000,and when they were sold,Travis recognized a $400,000 gain (option III).

Travis and Andrea Were Divorced