Alimony. As a result of their divorce, Fred agrees to pay alimony to Tammy of $2

Question

Alimony. As a result of their divorce, Fred agrees to pay alimony to Tammy of $20,000
per year. The payments are to cease in the event of Fred’s or Tammy’s death or in the event
of Tammy’s remarriage. In addition, Tammy is to receive their residence, which cost them
$100,000 but is worth $140,000.
a. Does the fact that Tammy receives the residence at the time of the divorce mean that
there is a reduction in alimony, which will lead to Fred having to recapture an amount
in the subsequent year?
b. How will the $20,000 payments be treated by Fred and Tammy?

Explanation / Answer

a. Does the fact that Tammy receives the residence at the time of the divorce mean that
there is a reduction in alimony, which will lead to Fred having to recapture an amount
in the subsequent year?'

no.
reduction in alimony, lead to recapture.

residence at the time of the divorce -does not mean cash payment as alimony,

b. How will the $20,000 payments be treated by Fred and Tammy?

$20,000 payments be
treatment
deductible by Fred
and taxable by Tammy

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