Mike and Karen were divorced. Their only marital property was a personal residence with a fair market value of $1.5 million and

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Mike and Karen were divorced. Their only marital property was a personal residence with a fair market value of $1.5 million and

a cost of $575,000. Under the terms of the divorce agreement, Mike would receive the house and Mike would pay Karen $150,000 each year for 5 years, or until Karen's death, whichever should occur first. Mike and Karen were not living together when the payments were made by Mike. Mike paid the $750,000 to Karen over the five-year period. Mike's recognized gain from the transfer of the house to him is:

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1 answer:

Katen [3.5K] · Answer 1 · 2026-03-26T09:38:00+03:00

Answer:

Mike's acknowledged gain from the transfer of the house to him is:

$175,000

Explanation:

a) Data and Calculations:

Marital property = $1,500,000

Cost of property = $575,000

Residual value = $925,000

Alimony to Karen = $750,000 ($150,000 * 5)

Balance (Mike's) = $175,000

The amount of $175,000 signifies the surplus of the fair market value of the marital property after accounting for the property's cost and the alimony paid to Karen. Thus, Mike recognizes a gain of $175,000 following the property sale.