What amount of these payments should be reported as income in Mary’s 1992 income tax return?

John and Mary were divorced in 1991. The divorce decree provides that John pay alimony of $10,000 per year, to be reduced by 20% on their child’s 18th birthday. During 1992, John paid $7,000 directly to Mary and $3,000 to Spring College for Mary’s tuition.

What amount of these payments should be reported as income in Mary’s 1992 income tax return?
A . $5,600
B. $8,000
C. $8,600
D. $10,000

View Answer

Answer: D

Explanation:

Under U.S. federal tax law, alimony payments are generally deductible by the payer and must be included in the recipient’s income. However, the tax treatment of alimony has changed with the Tax Cuts and Jobs Act (TCJA), and this applies to divorce or separation agreements executed after December 31, 2018.

Given that John and Mary were divorced in 1991, the old rules apply.

From the given information:

John paid $7,000 directly to Mary, which would typically qualify as alimony.

John also paid $3,000 to Spring College for Mary’s tuition, and assuming this payment was made as part of the divorce agreement to support Mary, this amount could also be considered as alimony.

Therefore, the total amount that should be reported as income in Mary’s 1992 income tax return is the sum of these payments: $10,000.