1. (TCOs 7, 8, and 9) Orlando and Katelyn were divorced. Their only marital prop
ID: 2472190 • Letter: 1
Question
1. (TCOs 7, 8, and 9) Orlando and Katelyn were divorced. Their only marital property was a personal residence with a value of $250,000 and cost of $100,000. Under the terms of the divorce agreement, Katelyn would receive the house and Katelyn would pay Orlando $50,000 each year for 5 years. If Orlando should die, the remaining payments would be made to his estate. Orlando and Katelyn lived apart when the payments were made to Orlando. The divorce agreement did not contain the word alimony. (Points : 5)
Orlando must recognize a $75,000 ($125,000 - $50,000) gain on the sale of his interest in the house.
Orlando recognizes alimony income of $50,000 each year.
Katelyn is allowed to deduct $50,000 each year for alimony paid.
Katelyn is not allowed any alimony deductions.
None of the above
1. (TCOs 7, 8, and 9) Orlando and Katelyn were divorced. Their only marital property was a personal residence with a value of $250,000 and cost of $100,000. Under the terms of the divorce agreement, Katelyn would receive the house and Katelyn would pay Orlando $50,000 each year for 5 years. If Orlando should die, the remaining payments would be made to his estate. Orlando and Katelyn lived apart when the payments were made to Orlando. The divorce agreement did not contain the word alimony. (Points : 5)
Explanation / Answer
Solutions:
When a married couple becomes divorced or legally separated, it provides for payment of alimony or separate maintenance payments, a periodic money transfer from ome spouse to other. Alimony payments are generally deductible by the spouse making the payments and are includible in the income of the spouse receiving the payments.
The tax treatment of alimony does not apply to voluntary payments - it requires that alimony be stipulated by any of the following:
In the given case, since the word alimony is not mentioned in the divorce agreement. Therefore, Ketelyn is not allowed any alimony deductions.
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