Tim and Janet Were Divorced

Multiple Choice

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."

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.