In: Finance
Diane and Peter were divorced in 2017. The divorce agreement states that Peter is to have custody of their son, Stewart, and that Peter will be entitled to the dependency exemption. In addition, Diane is required to pay Peter $12,000 per year until Stewart turns 18 years of age, when the yearly amount will be reduced to $8,000. What is Diane’s allowable deduction, and how should it be deducted on her return?
Diane is allowed a deduction for adjusted gross income (alimony) for only $8,000 of $12,000 she pays to Peter (who includes the $8,000 in his gross income). Because the payment will be reduced from $12,000 to $8,000 when Stewart turns 18, only $8,000 is considered alimony and $4,000 is child-support.
The child support payment is not deductible by Diane nor is it taxable to Peter.