Jane and Mike are divorced in the current year. As part of the divorce settlemen

Question

Jane and Mike are divorced in the current year. As part of the divorce settlement, Jane transfers a plot of land in Long Island, NY to Mike. Jane's basis in the property was $20,000 and the market value of the property was $250,000 when transferred. Mike holds the property through the end of the year and in hopes of building a residence on it. How much income do Jane and Mike recognize in the current year?

a. $0 for Jane and $20,000 for Mike

b. $230,000 for Jane and $20,000 for Mike

c. $230,000 for Jane and $0 for Mike

d. $0 for both Jane and Mike

e. $0 for Jane and $250,000 for Mike

Please show all computations and explain why you chose your answer. Thank you.

Explanation / Answer

Answer is option (A).

Because Jane not received any consideration during the year and transfer asset to Mike without any consideration. So that the Jane Income in current year is $0.

Secondly Mike recorded to Asset ( Plot) on cost price which is value is $20,000. Mike hold this property whole year. So that the Mike Income is Current year is $ 20,000.

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