Ted and Alice divorced in 2014. Pursuant to the divorce decree, Ted pays $5,000 alimony and $7,500 child support to Alice every month. Alice is the custodial parent. Which of the following statements is true?

Question

Quizplus · Accepted Answer

Under the Tax Cuts and Jobs Act of 2017, for divorce agreements executed after December 31, 2018, alimony payments are no longer deductible by the payer and are not considered taxable income for the recipient. Since Ted and Alice divorced in 2014, this law does not apply directly to them; however, traditionally, child support payments are not deductible by the payer (Ted) and are not taxable income for the recipient (Alice). Therefore, Alice does not include child support in her gross income, and Ted cannot deduct child support payments. Alimony payments, under the pre-2019 rules, would be deductible by Ted and includable by Alice, but the question's statement applies a general principle without specifying the tax year for the income inclusion or deduction. The statement about Ted being entitled to child credits is incorrect because the custodial parent, Alice, typically has the right to claim the child tax credits unless she releases that right to Ted, which is not mentioned in the scenario.

Ted and Alice Divorced in 2014