Unit 5 Tax Implications and Changing Circumstances

Question 1

Spouses may file joint returns if?

Answer 1

1. Tax years begin on the same date
2. They are not legally separated on last day of calendar year or
3. neither is nonresident alien at any time during year

Question 2

What are the 4 tax implications in divorce?

Answer 2

1. Alimony Payments
2. Child Support Payments
3. Property Settlement Agreements
4. Child Dependency Exemptions

Question 3

What are the tax rules for Alimony?

Answer 3

Payments must be made in cash or for medical expenses, life insurance prem, housing costs tuition…etc

Payee and payor cannot be members of the same household

There is no liability to make payments after death

Payments are made directly to payee spouse or 3rd party for direct benefit of payee spouse.

Question 4

How are payments treated for tax purposes for the payee and payor?

Answer 4

1. If divorce before December 31, 2018

Payments are taxable to payee and tax deductible to payor.

2. If divorce is after

Payments are not taxable to payee and are not deductible to payor.

Question 5

What was Alimony recapture created for? When does it apply?

Answer 5

Created to keep taxpayers from disguising property settlements as alimony

Apply if there is more than $15,000 decrease in alimony payments between any of first three years alimony is paid.