Question

1 In January of the current year, Dora made a gift of stock to her granddaughter. At the time of the gift, the stock was worth $15,000. Several months later in the same year after the gift, a $500 dividend was declared on the stock and paid to Dora's granddaughter. What amount must Dora's granddaughter include in her gross income for the current year?

2 Barney and Betty got divorced in 2018. In the divorce decree Betty agreed to transfer 100 shares of common stock worth $50,000 and pay Barney $24,000 per year for five years (or until Barney's death or remarriage). What amount (if any) is included in Barney's gross income this year?

3. Max, a single taxpayer, has a $270,000 loss from his sole proprietorship. How much of this loss is not deductible after considering the excess business loss rules?

Answer 1

1. Dora's granddaughter must include $500 in her gross income for the current year. The gift of the stock is excluded but the dividend on the shares is taxable.

2. The amount included in Barney's gross income this year is $24,000. The alimony payments are in cash pursuant to a divorce and do not survive the death of the recipient.

3. The amount of loss which is not deductible after considering the excess business loss rules is $20,000. The maximum which Max, a non-corporate taxpayer can deduct is $250,000. As his losses exceed that, $20,000 is not deductible.