CDS Tax Implications of Divorce

Question 1

Under the Tax Cuts and Jobs Act (TCJA) of 2017, how is alimony treated for divorce agreements executed after December 31, 2018?

Accepted Answer

Not deductible by the payor and not taxable to the recipient

Answer

Under the TCJA, for agreements finalized after December 31, 2018, alimony is no longer deductible by the payor or included in the recipient's gross income.

Question 2

For a divorce agreement executed in 2016, how is alimony taxed under pre-TCJA rules?

Accepted Answer

Deductible by the payor and taxable to the recipient

Answer

Under pre-TCJA rules, alimony was an above-the-line deduction for the payor and included as gross income for the recipient.

Question 3

Under IRC Section 1041, what is the tax consequence when one spouse transfers appreciated property to the other spouse incident to divorce?

Accepted Answer

No gain or loss is recognized by the transferor

Answer

IRC Section 1041 provides that transfers of property between spouses or former spouses incident to divorce are treated as gifts — no gain or loss is recognized by the transferor.

Question 4

When property is transferred between divorcing spouses under IRC Section 1041, what tax basis does the recipient (transferee) take in the property?

Accepted Answer

The transferor's adjusted basis (carryover basis)

Answer

The recipient takes the transferor's adjusted basis (carryover basis), meaning any built-in gain is preserved and will be taxed when the recipient eventually sells the property.

Question 5

Which IRS filing status can a custodial parent use in the year of divorce if they paid more than half the home costs and the child lived there more than half the year?

Accepted Answer

Head of Household

Answer

A custodial parent who meets the household maintenance and residency tests qualifies for Head of Household status, which provides a larger standard deduction and lower tax rates than Single.

(CDS) Certified Divorce Specialist Practice Test

(CDS) Certified Divorce Specialist Practice Test

CDS Tax Implications of Divorce