Mike and Karen were divorced.Their only marital property was a personal residence with a fair market value of $1.5 million and a cost of $575,000.Under the terms of the divorce agreement,Mike would receive the house and Mike would pay Karen $150,000 each year for 5 years,or until Karen's death,whichever should occur first.Mike and Karen were not living together when the payments were made by Mike.Mike paid the $750,000 to Karen over the five-year period.Mike's recognized gain from the transfer of the house to him is:

A) $0.
B) $750,000.
C) $925,000.
D) $1,500,000.

Question

Alejandra Martinez · Accepted Answer

Final Answer : A, Explanation :  In a divorce settlement, the transfer of property between spouses or ex-spouses is generally considered a nontaxable event if it is related to the end of the marriage. Therefore, Mike's recognized gain from the transfer of the house to him would be $0, as the transfer of the house under the divorce agreement is not recognized as a taxable gain.

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