Question

Calculator eBook Print Item Exercise 4-23 (Algorithmic) (LO. 4) Casper and Ceile are divorced this year, As part of the divorce settlement, Casper trandferred stock to Cecile. Casper purchased the stock for $100,000, and it had a market value of $160,000 on the date of the transfer. Cecle sold the stock for $140,000 a month after recelving t. In addition Casper is required to pay Cecile $5,000 a month in alimony. He made five payments to her during the year what are the tax consequences for Casper and Cecile regarding these transactions? If an amount is zero, enter .SO a. How much gain or loss does Casper recognize on the transfer of the stock? b. Does Casper receive a deduction for the $25,000 alimony paid? C. How much income does Cecile have from the $25,000 alimony received? d. When Cecile sells the stock, how much does she report? Cecile will report a Cell Phones Of S D FG H

Answer 1

1. As per IRS, in a divorce case, the party making the payment is eligible to deduct the alimony and separate maintenance payments, whereas the party receiving the payment is required to include the amount received in the gross income. But any transfer of property other than cash under a divorce is not taxable. Therefore, Casper is not required to reognise any gain. The party making transfer d to a deduction for transferred property and does not recognize any gain/loss in the transfer. The party receiving the property also does not recognize income and include the item on cost basis equal to the basis of the party making transfer.

1. The Alimony paid by the Casper of $25000 is included in Cecile’s total income and Casper is allowed deduction of the same.

1. Cecile has to book entire amount of alimony received of $25000 as her income.

1. Cecile shall report the entire recognized capital gain as the stock were transferred on cost basis, So amount to be reported = $140000-$100000 = $40000