Al and Peggy Divorce in the Current Year

question 86

Multiple Choice

Al and Peggy divorce in the current year.As part of their divorce agreement,Peggy is to pay Al $70,000 for his share of their home (the home's fair market value is $140,000) .Also,Peggy agrees to pay Al $1,000 monthly.The payment represents the financial support for their 15-year-old son,Bud.It will cease upon Bud's 23^rd birthday or college graduation-whichever comes first.Which of the following explain(s) the tax effects of these events?
I.Peggy can deduct $12,000 annually for the monthly payments made this year.
II.Al does not recognize the $1,000 monthly payments as income.
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• A)Only statement I is correct.
• B)Only statement II is correct.
• C)Both statements are correct.
• D)Neither statement is correct.

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Definitions:

CPI

The Consumer Price Index (CPI) measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Period

A length or portion of time.

Buying Power

Buying power refers to the value of currency to purchase goods and services, influenced by factors like inflation and the strength of the currency.

CPI

The Consumer Price Index represents a measurement that calculates the aggregate weighted cost of a selection of consumer goods and services, including items like food, medical services, and transportation.