Question

During 2018, Jane had the following transactions:

Dividend income from Google Stocks                                                                $50,000

Interest income from US Government Bonds                                                       6.000

Life insurance proceeds                                                                                             5,000

In addition, under a divorce agreement entered into in 2017, John is required to make periodic alimony payment of $1,000 per month to Jane. However, when John and Jane’s child reaches age 21, marries, or dies (whichever occurs first), the payments will be reduced to $800 per month. Jane has custody of the child.

Jane’s amount excluded from gross income or “exclusions” in 2018 is:

Answer 1

Jane's Exclusion in 2018:

(1) Interest income from US government bonds = $6,000

(2) Life insurance proceeds = $5,000 (proceeds received on death of the insurer is generally not taxable to the receipient)

Therefore, total exclusion for the year 2018 will be $11,000.

Note: Amount received as an alimony for divorce agreement entered into before the year 2018 is treated as income for the receipient and the same is deductible for payer. In the given case, Jane is receipient of alimony, it will be taxable to her as divorce agreement is entered into in 2017.