Divorce Divorce and Taxes 1 — Questions and Answers
Question 1: What filing status can a recently divorced person use if they were legally divorced by December 31 of the tax year?
- Married Filing Jointly
- Single (Correct answer)
- Married Filing Separately
- Head of Household
Correct answer: Single
If a divorce is finalized by December 31, the IRS considers the person unmarried for the entire year and they must file as Single (or Head of Household if eligible).
Question 2: Under the Tax Cuts and Jobs Act of 2017, how is alimony paid under divorce agreements finalized after December 31, 2018, treated for federal income taxes?
- Deductible by the payer and taxable to the recipient
- Not deductible by the payer and not taxable to the recipient (Correct answer)
- Deductible by the recipient and taxable to the payer
- Always exempt from federal taxes for both parties
Correct answer: Not deductible by the payer and not taxable to the recipient
For divorce agreements finalized after December 31, 2018, alimony is no longer deductible by the payer and is not included in the recipient's taxable income under the TCJA.
Question 3: Which IRS form is used to report alimony received under pre-2019 divorce agreements?
- Schedule C
- Form 1099-MISC
- Schedule 1 of Form 1040 (Correct answer)
- Form W-2
Correct answer: Schedule 1 of Form 1040
Alimony received under pre-2019 divorce agreements is reported as income on Schedule 1 (Additional Income and Adjustments) attached to Form 1040.
Question 4: When dividing a 401(k) in a divorce, what legal document is required to avoid immediate tax penalties on the transfer?
- A standard divorce decree
- A Qualified Domestic Relations Order (QDRO) (Correct answer)
- A Form 1099-R filed with the IRS
- A written letter from both spouses
Correct answer: A Qualified Domestic Relations Order (QDRO)
A Qualified Domestic Relations Order (QDRO) is required by the IRS and plan administrator to transfer retirement assets in a divorce without triggering early withdrawal penalties or immediate taxes.
Question 5: If a divorcing couple sells their jointly owned home, what is the maximum capital gains exclusion each individual may claim if they each meet the ownership and use tests?
- $125,000 each
- $250,000 each (Correct answer)
- $500,000 each
- $1,000,000 each
Correct answer: $250,000 each
Each spouse can exclude up to $250,000 of capital gains from the sale of a primary residence if they individually meet the two-of-five-year ownership and use tests under IRC Section 121.
Question 6: Child support payments received from a former spouse are treated how for federal income tax purposes?
- Fully taxable as ordinary income
- Partially taxable depending on the amount
- Not taxable to the recipient and not deductible by the payer (Correct answer)
- Deductible by the payer only
Correct answer: Not taxable to the recipient and not deductible by the payer
Child support is neither taxable income to the recipient nor tax-deductible for the paying parent under IRS rules.
Question 7: Which parent is generally entitled to claim a child as a dependent for tax purposes after divorce?
- Always the parent who pays child support
- The custodial parent by default, unless a written agreement assigns it to the noncustodial parent (Correct answer)
- The parent with the higher income
- Both parents can claim the child simultaneously
Correct answer: The custodial parent by default, unless a written agreement assigns it to the noncustodial parent
The IRS default rule gives the dependency exemption and related credits to the custodial parent, but IRS Form 8332 can be used to release the claim to the noncustodial parent.
Divorce Divorce and Taxes 1
What filing status can a recently divorced person use if they were legally divorced by December 31 of the tax year?