Special Circumstances

Question 1

Divorce

Answer 1

• Consider selling home before divorced to take advantage of 500k exclusion
• Property settlements are tax free exchanges, maintains cost basis
• Divorces finalized before 2019, alimony was taxable to recipient and excludable by payor

Question 2

Account titling for Domestic Partners

Answer 2

Revocable Trust

Tenancy-in-Common

Question 3

COBRA

Answer 3

Businesses w/20 or more employees must offer

Termination-18 months

Death/Divorce/Separation-36 months

Loss of Dependent status-36 months

Question 4

Structured Settlement

Answer 4

Voluntary Agreement between the personal injury victim and defendant who was deemed to be negligent

Stream of Tax Free income payments

May be private or court ordered

Question 5

Compensatory Damages

Answer 5

Received because of personal physical injuries or sickness

Generally tax free, but interest after award is taxed

Damages received in discrimination are taxable with the exception of medical expenses

Question 6

Punitive Damages

Answer 6

Intended to punish wrongdoing by highly negligent defendant

Generally taxed;e except in wrongful death cases

Question 7

Annuitizing the Award

Answer 7

If lump sum present value is invested, only principal is excluded from taxation

If claimant retains no rights to principal but instead gets annuitized payments, entire amount is excludable