Question

Problem 4-46 (LO. 4)

Nell and Kirby are in the process of negotiating their divorce agreement, to be finalized in 2018. What should be the tax consequences to Nell and Kirby if the following, considered individually, became part of the agreement?

a. In consideration for her one-half interest in their personal residence, Kirby will transfer to Nell stock with a value of $200,000 and $50,000 of cash. Kirby's cost of the stock was $150,000, and the value of the personal residence is $500,000. They purchased the residence three years ago for $300,000.

The transfer of the property is a   event.

Nell's basis for the stock is $.

Kirby's basis in the house is $.

b. Nell will receive $1,000 per month for 120 months. If she dies before receiving all 120 payments, the remaining payments will be made to her estate.

The payments   as alimony and are   Nell's gross income as they are received.

c. Nell is to have custody of their 12-year-old son, Bobby. She is to receive $1,200 per month until Bobby (1) dies or (2) attains age 21 (whichever occurs first). After either of these events occurs, Nell will receive only $300 per month for the remainder of her life.

$ per month is alimony that is   Nell's gross income, and the remaining $ per month is considered   and is   to Nell.

Answer 1

Answer

A) Here important thing to note is that the transfer of the stock and residence in connection with the divorce are in actually non-taxable in the hands of Nell and Kirby. Kirby’s basis in the stock would be $150,000, at the same time basis in the house would be $300,000. However, the money received in the form of cash should be treated as alimony, unless the agreement says no.

B) here the thing is that the cash payment that is being made will actually not qualify to be alimony reason being is simple that this payment does not cease after Nell’s death. Thus Kirby is not allowed to deduct this sum from his AGI since it is not the alimony, also, at the same time; these payments are actually excluded from Nell’s gross income since they are actually received from her.

C) Here, the monthly payment that is being received by Nell is consisting child support ($900) and alimony amount ($300). It is alimony reason being is simple that the payment of $300 will be continuing even after child dies or attains the maturity age of 21. Thus it qualifies as alimony amount. And that is why this $300, must need to include in Nell’s AGI and the remaining $900 is child support. Also, since there is alimony paid, Kirby should definitely deduct the alimony till the tune of $300 (actual money paid) from his AGI.