CDS Tax Implications of Divorce 2

Question 1

A divorcing couple sells their jointly-owned primary residence. They lived in it for 3 of the last 5 years. What is the maximum capital gain exclusion available?

Accepted Answer

$250,000 per person ($500,000 total)

Answer

$125,000 per person ($250,000 total)

Answer

$500,000 per person ($1,000,000 total)

Answer

$250,000 total, split between them

Question 2

Child support payments received by the custodial parent are treated how for federal income tax purposes?

Accepted Answer

Neither deductible by the payor nor taxable to the recipient

Answer

Taxable income to the recipient

Answer

Deductible by the payor

Answer

Taxable to the recipient but deductible by the payor

Question 3

Which IRS relief provision may protect an innocent spouse from liability for tax deficiencies caused by errors or fraud on a jointly filed return?

Accepted Answer

IRC Section 6015 (Innocent Spouse Relief)

Answer

IRC Section 1031 (Like-Kind Exchange)

Answer

IRC Section 121 (Home Sale Exclusion)

Answer

IRC Section 72(t) (Early Distribution Penalty)

Question 4

A QDRO (Qualified Domestic Relations Order) is used to divide which type of retirement account without triggering early withdrawal penalties?

Accepted Answer

Employer-sponsored qualified plans (e.g., 401(k), pension)

Answer

Traditional IRA

Answer

Roth IRA

Answer

Health Savings Account (HSA)

Question 5

When an IRA is transferred to a spouse or former spouse pursuant to a divorce or separation instrument, the transfer is treated under IRS rules as:

Accepted Answer

A tax-free transfer to the recipient spouse's IRA

Answer

A taxable distribution to the original owner

Answer

A gift subject to gift tax

Answer

Ordinary income to the recipient

Question 6

After divorce, only one parent can claim the Child Tax Credit. This credit is generally available to:

Accepted Answer

The parent who claims the child as a dependent

Answer

The parent who pays more child support

Answer

The parent with the higher income

Answer

Both parents, split 50/50

Question 7

A divorce decree requires the husband to pay off a joint mortgage and keep the home. When the home is later sold, which tax consequence applies regarding the wife's original ownership?

Accepted Answer

The husband can exclude up to $250,000 of gain if he meets the use and ownership tests

Answer

The wife owes capital gains tax on her share of the appreciation

Answer

No taxes apply because of the divorce decree

Answer

The husband must pay gift tax on the value transferred from the wife