LO.7 Jeff and Jill are divorced on August 1, 2010. According to the terms of the divorce decree, Jeff’s ownership interest in the house is to be transferred to Jill in exchange for the release of marital rights. The house was separately owned by Jeff and on the date of the transfer has an adjusted basis of $175,000 and a fair market value of $200,000.

a. Does the transfer cause recognized gain to either Jeff or Jill?

b. What is the basis of the house to Jill?

c. If instead Jeff sold the house to Jill for $200,000 two months prior to the divorce, would either Jeff or Jill have recognized gain?

d. Which transaction,

(a) or (c), would be preferable for Jeff?