Question

Based on a divorce agreement (which was signed and in effect on 11/19/2015), Tim is to pay his former wife Amy $10,000 per month. These payments will be reduced to $6,000 per month when their 8 year-old daughter reaches age 18. During the current year (2020), Tim paid $120,000 under the agreement. Assume that no other relevant tax issues effect this agreement. How much can Tim deduct from gross income and how much does Amy include in gross income? Be as brief as possible in providing your answer.

Answer 1

Tim can deduct an amount of $ 6,000per month and Amy can include an amount of $ 6,000 per month

• Explanation:

As per IRS,

​​for a couple who got divorced before 2018,

Old rules continue to apply, i.e, alimony payments are deductible by the payer and taxable to the recipient.

Since, the agreement is dated 11/19/2015,

Tim can deduct and Amy can include

$ 6,000*12. = $ 72,000

Balance amount of 4000 per month can be child support payments, that can neither be deductible by payer, nor includable by receiver.