How should I report a delayed lump sum payment from ex-spouse's home sale years after our divorce?

Thank you so much for the information! That makes sense, but I'm a bit confused about one thing. The divorce agreement specifically mentioned "$34,000" as the amount she was entitled to - not a percentage of the home sale. Does that change anything? Also, he ended up giving her $36,500 because he said it was to make up for the long wait. Would that extra amount be considered interest and therefore taxable?

Since the divorce agreement specified a fixed dollar amount rather than a percentage of the home's value, that strengthens the case that this was simply a property settlement and not a capital gain situation. The $34,000 represents her share of marital assets that was determined during the divorce. Regarding the additional $2,500 your sister received, that could potentially be viewed as interest or as a separate gift. If her ex-spouse characterized it as interest for the delayed payment, it would likely be considered taxable income to her. If it's considered a gift, it would generally not be taxable to her (the gift tax obligation would fall on the giver if it exceeded annual exclusion amounts, but that's not your sister's concern).

How does this service work exactly? I'm going through something similar but it's about retirement accounts instead of property. Not sure if a computer system can really understand all the nuances of a legal divorce decree better than a human tax professional...

Does it actually connect you with a real tax professional or is it just scanning documents? I'm skeptical that AI can properly interpret legal language in divorce decrees. These situations are so specific to each person's circumstances.

The service uses AI to analyze your documents and extract relevant tax information - you just upload your divorce papers and it identifies specific clauses that relate to tax implications. It then produces a detailed report showing exactly how each asset transfer should be treated for tax purposes. While it doesn't replace a tax professional, it gives you a comprehensive analysis that you can take to your accountant or use for your own filing. The system is specifically trained on tax law related to divorce, property settlements, and asset divisions, so it catches details that general tax preparers sometimes miss.

Wait, this actually works? I've literally spent DAYS of my life waiting on hold with the IRS over the past two years. How does this service get you through faster than calling yourself?

This sounds like a scam. There's no way to "skip the line" with the IRS. They answer calls in the order received. Why would they let some third-party service jump ahead?

Yes, it actually works! The system essentially automates the calling process. It repeatedly calls the IRS using their system and navigates the phone tree until it gets in queue, then it holds your place in line. When a real person is about to answer, you get a call connecting you directly to the IRS agent. It's like having someone else do the waiting for you. It's not actually skipping the line - you're still in the same queue as everyone else. The difference is you don't have to sit there with your phone to your ear for hours. You can go about your day, and the system calls you when an agent is available. The IRS doesn't know you're using a service - they just see a normal call coming in.

The divorce was finalized in 2019, but the agreement definitely doesn't call it alimony. It's labeled as "property settlement" in the divorce decree. Is that clear enough for the IRS or does she need additional documentation? And would the extra amount he paid her ($2,500 over the agreed amount) fall under the same category?

If the agreement specifically labels it as "property settlement" in the divorce decree, that's very clear documentation for the IRS. That's exactly what you want - language that explicitly categorizes the payment as division of marital assets rather than support payments. For the extra $2,500, that's a bit trickier. Since it wasn't specified in the original agreement, the IRS might consider it as a separate transaction. If her ex specifically characterized it as interest or compensation for the delay, it could be considered taxable income. If it was presented as an additional property settlement or a gift, it would likely not be taxable to her. I'd recommend documenting any communication about that extra amount (emails, texts) that explains the nature of that additional payment.

This is a really good point. When I went through my divorce, my ex-spouse incorrectly issued me a 1099 for a property settlement payment. I had to file Form 8275 (Disclosure Statement) with my tax return to explain why I wasn't reporting the amount as income. Saved me from an automatic audit flag when the IRS computers saw the 1099 but didn't see matching income on my return.

She hasn't received any tax forms yet, but that's a really good point! I'll tell her to wait before filing her taxes to make sure she doesn't get a 1099 from him. If she does, we'll definitely need to file that Form 8275 with an explanation. The divorce was such a mess that I wouldn't be surprised if he reports it incorrectly just to cause problems.