Making the Best of Bad Situations 2026 - 14 CPE

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This course will teach participants how to apply, implement, and evaluate the strategic tax aspects of marital dissolutions and living together arrangements. Current perspectives on property transfers, asset divisions, alimony, filing status, exemptions, and child support are examined with an emphasis on planning considerations. The cancellation of indebtedness income inclusion rules are examined in the context of debt forgiveness and property foreclosure. Emphasis is given to the exceptions from income inclusion contained in §108. The tax treatment of property repossession under §1038 is explored with detail given to the calculation of gain and received property basis. Finally, bad debt treatment under §166 is reviewed and critical distinctions are made between business and non-business debts.
Completion Deadline & Exam: This course, including the examination, must be completed within one year of the date of purchase. In addition, unless otherwise indicated, no correct or incorrect feedback for any exam question will be provided.
Course Level: Overview. This program is appropriate for professionals at all organizational levels.
Field of Study: Taxes
Prerequisite: General understanding of federal income taxation.
Advanced Preparation: None
Learning Assignments & Objectives
As a result of studying each assignment, you should be able to meet the objectives listed below each assignment.
Chapter 1 Basic Marital Tax Matters
At the start of Chapter 1, participants should identify the following topics for study:
* Marital status
* Joint return
* Separate returns
* Head of household
* Exemptions
* Divorce costs
* Withholding & estimated tax
* Community property states
* Ending the community
* Living together
Learning Objectives
After reading Chapter 1, participants will be able to:
1. Specify the factors used to determine federal filing status and the effects of filing as married or unmarried.
2. Identify the requirements for filing a joint return and how to avoid being penalized and determine the key elements of filing separate returns, including what items to report and identify whether or not married taxpayers should file separate returns.
3. Cite the requirements for filing as head of household and the tax advantages and disadvantages of this filing status.
4. Recognize the repeal of personal & dependency exemptions, their former phase-out, availability, and reporting requirements, differentiate custodian and noncustodian parent, and identify the dependency determination impact.
5. Identify deductible and nondeductible divorce expenditures, specifying which spouse is subject to tax imposed upon withheld wages, and recognize the effects of making separate estimated tax payments or joint declarations of estimated tax.
6. Determine community property and the community property states, identify the effects of conversion and commingling of property, and how to avoid such marital property issues.
7. Identify community income earned by married couples for reporting purposes, recognize the allocation of income when spouses have different residences, and determine the treatment of alimony payments versus community share.
8. Identify the effect of living together on filing statuses and dependency, and recognize the tax consequences of having a living together contract to avoid tax traps.
After studying the materials in Chapter 1, answer exam questions 1 to 23.
Chapter 2 Transfers Incident to Divorce
At the start of Chapter 2, participants should identify the following topics for study:
* Property rights
* Premarital agreements
* Application of §1031
* Incident to divorce
* Property basis
* Purchases of residence between spouses
* Purchases of business interests between spouses
* Selected asset divisions of residence & business interests
* Real & personal property
* Pension benefits
Learning Objectives
After reading Chapter 2, participants will be able to:
1. Identify types of marital property and their likely division, specify the legal principles used in dividing assets and providing support and determine the benefits of premarital agreements and the requirements and permissible provisions for a valid and comprehensive marital agreement.
2. Specify the position of U.S. v. Davis on interspousal transfers and the changes made by §1041, identify the requirements of §1041 and the scope of its application, determine whether a property transfer is incident to divorce, and identify how to meet these factors or avoid §1041 altogether when desired.
3. Determine the application of §1041 to transfers in trust under §1041(e) and to third-party transfers on behalf of a spouse or former spouse and recognize deferred tax liability by identifying property basis for the transferor spouse and transferee spouse under §1041 after a property settlement.
4. Specify the application of §1041 to property transfers where the transferee assumes liabilities encumbering the property and the obligation to supply basis information and recognize the dangers of purchasing a former spouse's interest in property, particularly a marital residence and its tendency to create deferred tax liability.
5. Determine tax effects of purchasing an interest in personal or real property used in a business or held for investment, recognize potential recapture, identify the use of a §1031 exchange to dispose of low-basis property received in a §1041 transfer, specify common disposition alternatives available on divorce, and identify the home sale exclusion requirements.
6. Recognize sale, redemption, and third-party transfers as methods of dividing a business, citing unique provisions under §736, identify whether gain or loss on a sale of real or personal property is capital or ordinary, and recognize the role and tax treatment of life insurance in property settlements.
7. Specify popular methods of dividing private and military retirement benefits in a divorce or separation action, identifying the requirements and tax consequences of a “qualified domestic relations order (QDRO).
After studying the materials in Chapter 2, answer exam questions 24 to 59.
Chapter 3 Spousal & Child Support
At the start of Chapter 3, participants should identify the following topics for study:
* Divorce or separation instrument
* Alimony requirements of instruments executed after 1984
* Alimony requirements of instruments executed before 1984
* Deducting pre-2019 alimony paid & reporting alimony received
* Pre-2019 recapture of alimony for type A & B agreements
* Alimony substitution trusts & annuities
* Alimony paid by an estate
* Child support
* COBRA coverage
* Qualified medical child support orders
Learning Objectives
After reading Chapter 3, participants will be able to:
1. Recognize how the tax treatment of spousal support payments has dramatically changed under the TCJA, identify the §71 requirements for pre-2019 decree alimony, and differentiate the tax treatment with current law.
2. Identify the tax treatment of child support and circumstances where a payment will be fixed as child support, and specify events that determine whether a contingency is clearly child-related and how to rebut this presumption of child support.
3. Recognize the COBRA and qualified medical child support order rules by identifying whether COBRA rules apply to different plans, including and specifying situations that may result in termination of continuing coverage and determine what constitutes a “qualified medical child support order,” recognizing the procedures, requirements, and jurisdiction of QMCSOs.
After studying the materials in Chapter 3, answer exam questions 60 to 79.
Chapter 4 Avoiding Tax on Debt Cancellation & Foreclosure
At the start of Chapter 4, participants should identify the following topics for study:
* Qualified farm debt exclusion
* Real property business debt
* General ordering of tax attribute reduction
* Reduction of tax benefits
* Basis reduction
* Partnership bankruptcy
* Corporation stock-for-debt rule
* S corporation bankruptcy
* Foreclosure
* Discounted acquisition of debt
Learning Objectives
After reading Chapter 4, participants will be able to:
1. Recognize the effect that debt cancellation has on net worth and potential income inclusion from cancellation of indebtedness income, and specify exceptions to the general income inclusion rule and their tax impact.
2. Identify tax attribute reductions and their application when reducing canceled debt, determine gain or loss resulting from foreclosure or re- possession, specify the timing and character of the gain or loss, and cite the hidden income tax danger when acquiring one's own debt at a discount.
After studying the materials in Chapter 4, answer exam questions 80 to 88.
Chapter 5 Repossession
At the start of Chapter 5, participants should identify the following topics for study:
* Repossession of personal property
* Non-installment method sales
* Installment method sales
* Basis of repossessed personal property
* Bad debt
* Repossession of real property
* Figuring gain on repossession
* Seller’s former home exception
Learning Objectives
After reading Chapter 5, participants will be able to:
1. Identify the character of gain or loss on repossession of property sold under the installment and the non-installment methods and determine the value of repossessed property upon judicial sale.
2. Determine adjusted basis on repossession and identify limits on taxable gain under §1038.
After studying the materials in Chapter 5, answer exam questions 89 to 95.
Chapter 6 Bad Debts
At the start of Chapter 6, participants should identify the following topics for study:
* Totally worthless bad debts
* True debt
* Mechanics’ liens
* Reporting & recovery
* Credit transactions
* Former business bad debts
* Insolvency of a partner
* Business loan guarantees
* Specific charge-off method
* Nonaccrual-experience accounting method
Learning Objectives
After reading Chapter 6, participants will be able to:
1. Determine bad debt categories and their tax treatment and recognize the reporting of bad debt losses.
2. Identify the qualifications for §166 tax treatment of business bad debt, specifying the debt’s relationship to business and the potential creation of a net operating loss.
After studying the materials in Chapter 6, answer exam questions 96 to 100.
SUBJECT Appendix A Legal Aspects of California Foreclosure
At the start of Appendix A, participants should identify the following topics for study:
* The players
* Nonjudicial foreclosure
* Judicial foreclosure process
* Liability on mortgages and deeds of trust Appendix A is optional and there are no questions to be answered.
Notice
This course and test have been adapted from materials and information contained in the above text and any supplemental material provided. This course is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional advice and assumes no liability whatsoever in connection with its use. Since laws are constantly changing, and are subject to differing interpretations, we urge you to do additional research and consult appropriate experts before relying on the information contained in this course to render professional advice.