Question

Under the terms of a divorce agreement, Ron is to pay his former wife Jill $10,000 per month. The payments are to be reduced to $7,000 per month when their 15 year-old child reaches age 18. During the current year, Ron paid $120,000 under the agreement. Assuming all of the other conditions for alimony are satisfied, Ron can deduct from gross income (and Jill must include in gross income) as alimony:

1) $120,000
2) $84,000
3) $36,000
4) $0
5) None of these is correct

Answer 1

Ron can deduct $84,000 from his gross income as alimony because the remaining $36,000 of the $120,000 paid is considered child support and cannot be deducted.

Step-by-step explanation:

In the scenario involving Ron and his divorce agreement, the amount he can deduct from gross income as alimony is $84,000. Ron paid a total of $120,000 during the year; however, the amount directly attributable to alimony must exclude payments tied to child support. Since the payment will reduce from $10,000 to $7,000 monthly once his child turns 18, the $3,000 difference per month ($3,000 x 12 months = $36,000) is considered child support. Therefore, Ron can deduct the remaining $120,000 - $36,000 = $84,000 as alimony.