Divorce Divorce and Taxes 3

Question 1

A divorced couple sells their home two years after the divorce. The ex-wife continued living there while the ex-husband did not. Who qualifies for the Section 121 capital gains exclusion?

Accepted Answer

Only the ex-wife qualifies because she meets the use test

Answer

Both ex-spouses qualify equally

Answer

Only the ex-husband qualifies because he retained ownership

Answer

Neither qualifies because they are no longer married

Question 2

Which of the following correctly describes the tax treatment of legal fees paid to an attorney during a divorce?

Accepted Answer

Personal divorce legal fees are generally not deductible; fees for tax advice may be deductible

Answer

All divorce legal fees are fully deductible

Answer

Legal fees are deductible only if the divorce involves business assets

Answer

Legal fees are deductible up to $10,000 per year

Question 3

What happens to the filing status of a parent who has primary custody of their child but does not claim the child as a dependent?

Accepted Answer

They may still qualify as Head of Household based on the custody arrangement

Answer

They must file as Single

Answer

They automatically file as Married Filing Separately

Answer

They cannot claim Head of Household under any circumstances

Question 4

Under a divorce agreement finalized in 2017 (pre-TCJA), the paying spouse deducts $24,000 in alimony. What are the federal tax implications for the recipient?

Accepted Answer

The recipient must report $24,000 as ordinary income

Answer

The $24,000 is tax-free to the recipient

Answer

The recipient reports $12,000 as income

Answer

The $24,000 is treated as a gift

Question 5

A divorcing spouse is awarded stock with a current market value of $50,000 and a cost basis of $10,000. If they sell the stock one year later for $55,000, what is the taxable gain?

Accepted Answer

$45,000 (gain using the carryover basis of $10,000)

Answer

$5,000 (gain from the transfer date)

Answer

$55,000 (full proceeds are taxable)

Answer

$0 because it was a divorce settlement asset

Question 6

Which of the following tax credits may a custodial parent claim for a qualifying child after divorce?

Accepted Answer

The Child Tax Credit and the Earned Income Credit

Answer

Only the Earned Income Credit

Answer

No credits because their filing status changed

Answer

Credits are split 50/50 regardless of custody

Question 7

A pension is divided in divorce via a QDRO, and the alternate payee (the ex-spouse) begins receiving monthly payments. Who pays income tax on those payments?

Accepted Answer

The alternate payee (the ex-spouse) pays tax on the amounts received

Answer

The original plan participant (the employee spouse)

Answer

Both split the tax liability 50/50

Answer

No income tax applies to pension payments divided in divorce