Glenn and Vera divorce during the current year.Per their divorce agreement,Glenn receives their former personal residence valued at $180,000 with a basis of $100,000.Also,Glenn will pay Vera $5,000 annually for eight years.If Vera dies before the end of the eight years,the balance of the payments is to be paid to Vera's estate in a lump sum.The couple has not lived together for the past two years.
A)Glenn can deduct $5,000 annually for alimony paid to Vera.
B)Vera can deduct $40,000 (1/2 of the unrealized gain on the house).
C)Vera does not recognize any income from the property and/or cash transactions.
D)Vera must recognize $40,000 as a gain on the disposition of her interest in the house.
E)Vera must recognize all the cash received as alimony income.

Question

Quizplus · Accepted Answer

Vera does not recognize any income from the property or cash transactions as part of the divorce agreement. The transfer of the property to Glenn is part of the property settlement, and there is no recognition of gain or loss. The annual payments from Glenn to Vera are not considered alimony because they are not contingent upon Vera's death and are not made in cash or property. Therefore, the payments are not deductible by Glenn or taxable to Vera.

Glenn and Vera Divorce During the Current Year