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:

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