Answer the following questions, assuming that the related divorce agreements were executed during 2014.
a. Under a divorce agreement, Joan is required to pay her ex-husband, Bill, $700 a month until their daughter is 18 years of age. At that time, the required payments are reduced to $500 per month.
1. How much of each $700 payment may be deducted as alimony by Joan? $_______________
2. How much of each $700 payment must be included in Bill’s taxable income? $_______________
b. Under the terms of a property settlement executed during 2014, Jane transferred property worth $500,000 to her ex-husband, Tom. The property has a tax basis to Jane of $400,000.
1. How much taxable gain must be recognized by Jane at the time of the transfer? $_______________
2. What is the amount of Tom’s tax basis in the property he received from Jane? $_______________