Other Adjustments Including Alimony and Domestic Production
Learning Objective
Know what other items (alimony, domestic production, and other) are adjustments for AGI.
Alimony, as discussed in Chapter 3, Income: Personal Wages and Investments, is taxable income to the recipient and deductible as an adjustment from income by the payer.
Go to Publication 17 and read chapter 18: Alimony.
A self-employed taxpayer, a partner, or subchapter S corporation stockholders are eligible for the production activities deduction. The American Jobs Creation Act of 2004 created a new deduction based on the income from manufacturing operations and qualified domestic production activities including the manufacture, production, growth, or extraction of tangible personal property, computer software, sound recordings, or qualified films; the production of electricity, natural gas, or potable water in the United States; or construction services including related engineering and architectural services performed in the United States.
The deduction can be for 6% times the lesser of qualified production activities income or taxable income (or alternative minimum taxable income), and then limited to 50% of wages paid. For more information on this adjustment from income, see Form 8903.
Problem
Pete divorced Kathy in 2006. Under the terms of their divorce decree, Pete is to pay Kathy $2,730 per month for ten years, until their daughter, Kellin, turns 18 years old. After that time, Pete is required to pay Kathy $1,200. How much can Pete deduct as an adjustment for alimony in 2008, assuming he made timely payments for all 12 months? $__________
