How is alimony treated for tax purposes for agreements finalized before 2019?

For tax agreements finalized before 2019, alimony payments are considered deductible by the payer and taxable to the recipient. This treatment stems from the provisions of the Internal Revenue Code that were in place prior to the Tax Cuts and Jobs Act (TCJA), which took effect in 2018.

Under these provisions, when a divorce agreement stipulates alimony, the payer can deduct the amount they pay from their taxable income, effectively lowering their tax liability. On the other hand, the recipient must report the alimony received as income, making it subject to taxation as well. This structure was designed to provide a measure of financial relief for the payer while ensuring that the recipient is taxed on the income they receive.

It’s important to note that this treatment changed for agreements finalized after December 31, 2018, where alimony is no longer deductible by the payer or taxable to the recipient. This is why the correct answer highlights the deduction and taxable nature of alimony for agreements finalized prior to the TCJA changes.