Renee and Thomas Obtained a Divorce Effective May 1,2014

question 38

Short Answer

Renee and Thomas obtained a divorce effective May 1,2014.In accordance with the divorce decree,Thomas was required to pay Renee alimony of $2,500 per month (payments were to stop only in the event of her death or remarriage).Furthermore,he was to transfer title of their house which had a cost of $150,000 and a fair value of $200,000 on the date of transfer,and was to continue making the monthly mortgage payments of $1,500.
(a)Determine the amount of Thomas's alimony deduction in 2014.
(b)Determine the amount of Renee's alimony income in 2014.
(c)Assume that Thomas was required to pay off the remaining mortgage balance in the event Renee died.Does Thomas's alimony deduction in 2014 change? Why or why not?
(a)Thomas would report alimony payments of $32,000 in 2014.This represents the monthly payments of $2,500 to Renee plus the $1,500 mortgage payments,both for a period of eight months.
(b)Renee would have alimony income of $32,000 determined in the same manner as part (a).
(c)Thomas would be entitled to an alimony deduction of $20,000 in 2014.This amount represents eight months of $2,500 payments,but no deduction for the $1,500 mortgage payments.For a payment to be classified as alimony,the payment must cease at the payee spouse's death.If any payments are required to be made after the death of the spouse,then,under IRC § 71(b)(1)(D),the payments do not qualify as alimony,even payments made during the life of the spouse.In the problem,Thomas is required to pay off the mortgage balance if Renee dies.Since payoff is not required UNTIL she dies,Thomas will not make the payoff until AFTER she dies.Thus,the mortgage payments are not deemed to be alimony.

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