Tax Implications of Special Circumstances - Answer Key

1. B

Property owned by the payer and paid for by the payer, will not be considered alimony even if the ex-spouse is utilizing the property, and a divorce decree states that payment must be made by the payer for the benefit of the payee.

2.
C

Child support payments are non-deductible to the payer and non-taxable to the recipient.

3.
C Jim's cost basis in the stock will be $70,000. When he sells the stock, he will have a taxable gain on the profit above the original cost basis. There is no deduction for property ordered to be transferred in a divorce decree.

4.
D

The purpose of the qualified domestic relations order or QDRO is to inform and authorize the IRA custodian or 401k plan administrator on the court's ruling of the splitting of the retirement accounts.

5.
A

Remember the acronym "C-WALT-WINN" for all the community property states. They include: California, Washington, Arizona, Louisiana, Texas, Wisconsin, Idaho, Nevada and New Mexico.

6.
D

In community property states, the death of the first spouse allows both halves of the property to be "stepped-up" to the full FMV at date of death. So, Rose's new adjusted cost basis in the home would be $400,000.


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