Tax Implications of Divorce Flashcards
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Read the first 7 Tax Implications of Divorce flashcards as text
Under the Tax Cuts and Jobs Act (TCJA) of 2017, how is alimony treated for divorce agreements executed after December 31, 2018?
Answer: Not deductible by the payer and not taxable to the recipient
The TCJA eliminated the alimony deduction for the payer and the income inclusion for the recipient for agreements executed after December 31, 2018.
A couple divorced in 2016 and their divorce decree specifies alimony payments. What is the current tax treatment for those payments?
Answer: They retain the pre-TCJA treatment: deductible to payer, taxable to recipient
Pre-2019 divorce agreements are grandfathered under the old rules, making alimony deductible for the payer and taxable income for the recipient.
Which filing status can a divorced spouse use if they paid more than half the cost of maintaining a home for a qualifying child during the tax year?
Answer: Head of Household
A divorced parent who is legally single but maintains a home for a qualifying child for more than half the year can file as Head of Household, which provides a higher standard deduction.
For a payment to qualify as alimony under pre-TCJA rules, which of the following requirements must be met?
Answer: The spouses must not live in the same household at the time of payment
One key requirement for pre-TCJA alimony treatment is that the spouses cannot be members of the same household at the time payments are made.
What is the tax treatment of child support payments received after divorce?
Answer: Neither deductible by the payer nor taxable to the recipient
Child support payments have never been deductible by the payer or taxable to the recipient; they are considered a personal obligation.
If a divorce agreement is modified after December 31, 2018 to change the alimony amount, what happens to the tax treatment?
Answer: The post-TCJA rules (non-deductible/non-taxable) apply only if the modification expressly states the new rules apply
A post-2018 modification of a pre-2019 agreement only triggers the new TCJA rules if the modification expressly provides that the TCJA alimony rules apply.
A divorce decree designates a payment as 'family support' combining both alimony and child support. Under the IRS rules, how should a CDA advise the client about this designation?
Answer: If any portion is tied to a child-related contingency, the IRS may reclassify the whole amount as child support
Payments tied to child-related contingencies (such as reduction when a child turns 18) risk being fully reclassified as non-deductible child support by the IRS.