## Divorce Payments and Taxation ### Potentially Taxable/Deductible Item Related to Divorce The only item related to divorce that is potentially taxable or deductible is **alimony**. - **Alimony**: Prior to the Tax Cuts and Jobs Act of 2017, alimony payments were generally deductible for the payer and taxable for the recipient. However, for divorce agreements executed after December 31, 2018, alimony is neither deductible by the payer nor taxable to the recipient. ### Taxation of Property Settlements In a divorce settlement, property transfers are generally not taxable. The recipient spouse takes the original basis of the asset. ### Example Analysis #### Given: - **Stock Fair Market Value (FMV)**: $100,000 - **Stock Basis**: $60,000 The husband transfers this stock to the wife in a divorce settlement. #### Tax Implications: 1. **Initial Transfer**: - There are no immediate tax consequences for the husband or wife at the time of transfer. - The wife takes the husband's basis ($60,000) as her basis in the stock. 2. **When Wife Sells Stock**: - **Selling Price**: $90,000 - **Wife's Basis**: $60,000 - **Capital Gain**: Selling Price - Basis = $90,000 - $60,000 = $30,000 The wife will realize a capital gain of $30,000 when she sells the stock. ### Final Answer The wife realizes a capital gain of $30,000 when she sells the stock for $90,000.