Question

Stu and Harriett divorce on January 2 of the current year after eight years of marriage. Under the divorce decree, Harriett receives a vacation home that had been held jointly with Stu while they were married. The vacation home was acquired seven years ago for $90,000 but is worth $170,000 today. Additionally, Stu is required to pay Harriett $2,000 per month beginning in January; $1,300 is for alimony and $700 is for child support for their six-year-old son who lives with Harriett.

a. How much gross income does Harriett recognize in the current year?

b. Will Stu get a tax deduction for any of these payments?

Answer 1

a) For the vacation home, Harriett would not recognize any income, since the home was held jointly between Harriett and Stu before divorce. On the alimony payments, she needs to recognize $1,300 per month, which she receives. However, she also won’t recognize $700 received each month as this is for child support.

b) Yes. Stu is eligible for tax deduction of monthly alimony payments of $1,300 ($15,600 annually), while calculating his AGI each year. However, he can’t deduct either monthly payment of $700 or any amount against vacation home.