Question

Tim and Janet were divorced. Their only marital property was a personal residence with a value of $120,000 and cost of $50,000. Under the terms of the divorce agreement, Janet would receive the house and Janet would pay Tim $15,000 each year for 5 years, or until Tim's death, whichever should occur first. Tim and Janet lived apart when the payments were made to Tim. The divorce agreement did not contain the word "alimony."

Choose one answer:
a. Tim must recognize a $35,000 [$60,000 - 1/2($50,000)] gain on the sale of his interest in the house.
b. Tim does not recognize any income from the above transactions.
c. Janet is not allowed any alimony deductions.
d. Janet is allowed to deduct $15,000 each year for alimony paid.
e. None of these.

Answer 1

d. Janet is allowed to deduct $15,000 each year for alimony paid

Step-by-step explanation:

Based on the information given we were told that based on terms of the divorce agreement between the husband and the wife which is Tim and Janet, Janet would be the one to receive the house which is their only marital property in which she would as well pay Tim the amount of $15,000 each year for 5 years which means that since the term of their divorce agreement did not contain the word "ALIMONY" which simply means the ability of either the husband or the wife to make provision for either of them after a seperation or divorce has occurred between both, Janet will be allowed to deduct the amount of $15,000 each year for alimony paid because the term of the divorce agreement between Janet and Tim does not include the word ALIMONY.