Al and Peggy divorce in the current year.As part of their divorce agreement,Peggy is to pay Al $70,000 for his share of their home (the home's fair market value is $140,000) .Also,Peggy agrees to pay Al $1,000 monthly.The payment represents the financial support for their 15-year-old son,Bud.It will cease upon Bud's 23^rd birthday or college graduation-whichever comes first.Which of the following explain(s) the tax effects of these events?
I.Peggy can deduct $12,000 annually for the monthly payments made this year.
II.Al does not recognize the $1,000 monthly payments as income.

Question

Quizplus · Accepted Answer

Statement II is correct as child support payments are not taxable income to the recipient. However, statement I is incorrect as child support payments cannot be deducted by the payer for tax purposes. Peggy cannot claim a tax deduction for the $1,000 monthly payments made for financial support of their son.

Al and Peggy Divorce in the Current Year