Thelma and Mitch were divorced in 2017. The couple had a joint brokerage account that included stocks with a basis of $600,000 and a fair market value of $1,000,000. Under the terms of the divorce agreement, Mitch would receive the stocks and Mitch would pay Thelma $100,000 each year for 6 years, or until Thelma's death, whichever should occur first. Thelma and Mitch lived apart when the payments were made by Mitch. Mitch paid the $600,000 to Thelma over the six-year period. The divorce agreement did not contain the word "alimony." Then, Mitch sold the stocks for $1,300,000. Mitch's recognized gain from the sale is:

Question

Quizplus · Accepted Answer

Mitch's basis in the stock is $600,000, which is the value at the time of the divorce. When he sells the stock for $1,300,000, he realizes a gain of $700,000 ($1,300,000 - $600,000). The fact that he made payments to Thelma over the six-year period does not affect his basis or his realized gain. Therefore, the correct answer is C.

Thelma and Mitch Were Divorced in 2017