CDA Tax Implications of Divorce 2 — Questions and Answers
Question 1: Under the Tax Cuts and Jobs Act (TCJA) of 2017, how is alimony treated for divorce agreements executed after December 31, 2018?
- Deductible by the payer and taxable to the recipient
- Not deductible by the payer and not taxable to the recipient (Correct answer)
- Taxable to the payer and deductible by the recipient
- Always split 50/50 for tax purposes between both spouses
Correct 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.
Question 2: A couple divorced in 2016 and their divorce decree specifies alimony payments. What is the current tax treatment for those payments?
- The TCJA automatically converted them to non-deductible payments
- They retain the pre-TCJA treatment: deductible to payer, taxable to recipient (Correct answer)
- They are now taxable to the payer under new IRS grandfathering rules
- They are exempt from taxation for both parties under grandfather provisions
Correct 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.
Question 3: 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?
- Single
- Married Filing Separately
- Head of Household (Correct answer)
- Qualifying Surviving Spouse
Correct 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.
Question 4: For a payment to qualify as alimony under pre-TCJA rules, which of the following requirements must be met?
- Payments must be designated as non-alimony in the divorce agreement
- Payments must continue after the recipient's death
- The spouses must not live in the same household at the time of payment (Correct answer)
- Payments must be made at least quarterly
Correct 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.
Question 5: What is the tax treatment of child support payments received after divorce?
- Taxable income to the parent who receives them
- Deductible by the paying parent only
- Neither deductible by the payer nor taxable to the recipient (Correct answer)
- Subject to FICA taxes for both parents
Correct 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.
Question 6: If a divorce agreement is modified after December 31, 2018 to change the alimony amount, what happens to the tax treatment?
- The pre-TCJA rules continue to apply regardless of modification date
- The post-TCJA rules (non-deductible/non-taxable) apply only if the modification expressly states the new rules apply (Correct answer)
- All modifications automatically shift to post-TCJA treatment
- The IRS requires a five-year waiting period before new rules take effect
Correct 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.
Question 7: 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?
- The entire amount is deductible by the payer as alimony
- If any portion is tied to a child-related contingency, the IRS may reclassify the whole amount as child support (Correct answer)
- The recipient can choose each year how much to report as taxable income
- Family support is always split equally between deductible and non-deductible portions
Correct 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.
CDA Tax Implications of Divorce 2
Under the Tax Cuts and Jobs Act (TCJA) of 2017, how is alimony treated for divorce agreements executed after December 31, 2018?