ExpertMedium1 markMultiple Choice
CPA · Question 22 · Area I: Individual Compliance and Planning
As part of a divorce settlement in Year 1, Spouse A transfers stock (Basis $10,000, FMV $50,000) to Spouse B. What is the tax consequence of this transfer?
As part of a divorce settlement in Year 1, Spouse A transfers stock (Basis $10,000, FMV $50,000) to Spouse B. What is the tax consequence of this transfer?
Answer options:
A.
Spouse A recognizes $40,000 gain.
B.
Spouse B has a basis of $50,000.
C.
Spouse A recognizes gain, but Spouse B gets a step-up in basis.
D.
No gain recognized; Spouse B takes a basis of $10,000.
How to approach this question
Apply IRC §1041. Transfers incident to divorce are treated as gifts: No gain/loss recognized, and carryover basis applies.
Full Answer
D.No gain recognized; Spouse B takes a basis of $10,000.✓ Correct
D
IRC §1041. No gain or loss is recognized on a transfer of property from an individual to a spouse (or former spouse if incident to divorce). The transferee takes the transferor's adjusted basis ($10,000).
Common mistakes
Assuming the transfer is a sale at FMV.
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