Divorce Divorce and Taxes

Question 1

What filing status can a recently divorced person use if they were legally divorced by December 31 of the tax year?

Accepted Answer

Single

Answer

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?

Accepted Answer

Not deductible by the payer and not taxable to the recipient

Answer

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?

Accepted Answer

Schedule 1 of Form 1040

Answer

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?

Accepted Answer

A Qualified Domestic Relations Order (QDRO)

Answer

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?

Accepted Answer

$250,000 each

Answer

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.

Divorce Practice Test

Divorce Practice Test

Divorce Divorce and Taxes