Final answer:
For divorce agreements executed after December 31, 2018, alimony payments are excluded from gross income of the recipient and are nondeductible for the payer, making the correct answer (d) Nontaxable, nondeductible.
Option D.
Step-by-step explanation:
For all divorce agreements executed after December 31, 2018, the tax treatment of alimony payments has changed significantly under the Tax Cuts and Jobs Act (TCJA).
Firstly, the payments are now excluded from gross income of the recipient; this means that the individual receiving the alimony does not have to include these payments in their taxable income.
Secondly, the payments are nondeductible for the spouse making the payment, meaning the payer cannot reduce their taxable income by the amount of alimony paid.
This represents a shift from prior law, where alimony payments were taxable income for the recipient and the payments were tax-deductible for the payer.
So for a divorce agreement executed after December 31, 2018, the correct option would be (d) Nontaxable, nondeductible.
Understanding this can be essential for financial planning, especially when considering the impact on adjusted gross income and potentially taxable income for the individuals involved in a divorce.
Calculating taxable income involves subtracting deductions and exemptions from adjusted gross income, which now, in the context of alimony, would not include these payments post-2018 for either recipient or payer.