Travis and Andrea were divorced in 2016. 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.
I. If the $50,000 annual payments are to be made to Andrea or her estate (if she dies before the end of the eight years), the payments will qualify as alimony.
II. Andrea has a taxable gain from an exchange of her one-half interest in the stocks fo Travis' one-half interest in the house and cash.
III. If Travis sells the stocks for $900,000, he must recognize a $400,000 gain.

Question

Quizplus · Accepted Answer

Explanation: III is true because Travis's gain is calculated as the selling price ($900,000) minus his cost basis ($500,000), resulting in a $400,000 gain. I is false because alimony payments must cease upon the death of the recipient to qualify as alimony. II is false because the division of property in a divorce is generally not a taxable event.

Travis and Andrea Were Divorced in 2016