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Chapter 19. Alimony
Introduction
This chapter discusses the rules that apply to you if you pay or receive
alimony and covers the following topics:
∙ What is alimony
∙ What payments are not alimony, such as child support
∙ How to deduct alimony you paid
∙ How to report alimony income you received
∙ Whether you must recapture the tax benefits of alimony (Recapture means a
deduction was taken in a prior year and part of it had to be added back
in your income in 1992.)
Alimony is a payment to or for a spouse or former spouse under a divorce or
separation instrument. It includes separate maintenance payments. It does
not include child support.
Alimony is deductible by the payer and must be included in the spouse's or
former spouse's income. Although this chapter is generally written for the
payer of the alimony, the recipient can use the information to determine
whether an amount received is alimony.
To be alimony, a payment must meet certain requirements. Different requirements
apply to payments under instruments executed after 1984 and to payments under
instruments executed before 1985. This chapter discusses the rules for payments
under instruments executed after 1984. For the rules for payments under pre-
1985 instruments, see Publication 504, Tax Information for Divorced or
Separated Individuals.
Definitions. The following definitions apply throughout this chapter.
Spouse or former spouse. Unless otherwise stated in the following discussions
about alimony, the term "spouse" includes "former spouse."
Divorce or separation instrument. The term "divorce or separation instrument"
means:
A decree of divorce or separate maintenance or a written instrument
incident to that decree,
A written separation agreement, or
A decree or any type of court order requiring a spouse to make payments
for the support or maintenance of the other spouse, including a
temporary decree, an interlocutory (not final) decree, and a decree
of alimony pendente lite (while awaiting action on the final decree
or agreement).
Additional information of interest to persons who pay or receive alimony is
in Publication 504.
General Rules
The following rules apply to alimony regardless of when the divorce or
separation instrument was executed.
Payments not alimony. Not all payments under a divorce or separation
instrument are alimony. Alimony does not include:
1) Child support,
2) Noncash property settlements,
3) Payments that are your spouse's part of community income (see Community
Property in Publication 504),
4) Use of property, or
5) Payments to keep up the payer's property.
Alimony also does not include payments not required by a divorce or separation
instrument.
Payments to a third party. Payments to a third party on behalf of your spouse
under the terms of your divorce or separation instrument may be alimony, if
they otherwise qualify. This includes payments for your spouse's medical
expenses, housing costs (rent, utilities, etc.), taxes, tuition, etc. The
payments are treated as received by your spouse and then paid to the third
party. See Publication 504 for examples.
Life insurance premiums. Premiums you must pay under your divorce or
separation instrument for insurance on your life qualify as alimony to
the extent your spouse owns the policy.
Payments for jointly-owned home. If your divorce or separation instrument
states that you must pay expenses for a home owned by you and your spouse,
some of your payments may be alimony. See Publication 504 for information.
Instruments Executed After 1984
The following rules for alimony apply to payments under divorce or separation
instruments executed after 1984. They also apply to payments under pre-1985
instruments that have been changed to specify that these rules will apply.
A divorce or separation instrument executed after 1984 is treated as executed
before 1985 if it includes, without change, the terms for alimony under a
pre-1985 instrument. A change in the terms for alimony includes a change
in the amount or period of payment and the addition or deletion of any
contingencies or conditions. For examples, see Publication 504.
Alimony requirements. A payment to or for a spouse under a divorce or
separation instrument is alimony if the spouses do not file a joint return
and all the following requirements are met.
1) The payment is in cash.
2) The instrument does not designate the payment as not alimony.
3) If the spouses are separated under a decree of divorce or separate
maintenance, they are not members of the same household when the payment
is made.
4) There is no liability to make any payment (in cash or property) after the
death of the recipient spouse.
5) The payment is not treated as child support.
6) For instruments executed in 1985 or 1986, the minimum term rule is met.
These requirements are discussed below.
Payment must be in cash. Only cash payments, including checks and money
orders, qualify as alimony. Transfers of services or property (including a
debt instrument of a third party or an annuity contract), execution of a
debt instrument, or the use of property do not qualify as alimony.
Payments to a third party. Cash payments to a third party under the terms of
your divorce or separation instrument can qualify as a cash payment to your
spouse. See Payments to a third party under General Rules, earlier.
Also, cash payments made to a third party at the written request of your
spouse qualify as alimony if all the following requirements are met.
1) The payments are in lieu of payments of alimony directly to your spouse.
2) The written request states that both spouses intend the payments to be
treated as alimony.
3) You receive the written request from your spouse before you file your
return for the year you made the payments.
Payments designated as not alimony. You and your spouse may designate that
otherwise qualifying payments are not alimony by including a provision in your
divorce or separation instrument that the payments are not deductible by you
and are excludable from your spouse's income. For this purpose, any writing
signed by both of you that makes this designation and that refers to a
previous written separation agreement is treated as a written separation
agreement. If you are subject to temporary support orders, the designation
must be made in the original or a subsequent temporary support order.
To exclude the payments from income, your spouse must attach a copy of the
instrument designating them as not alimony to his or her return for each
year the designation applies.
Spouses cannot be members of the same household. Payments to your spouse while
you are members of the same household are not alimony if you are separated
under a decree of divorce or separate maintenance. A home you formerly shared
is considered one household, even if you physically separate yourselves in the
home.
You are not treated as members of the same household if one of you is
preparing to leave the household and does leave not more than one month
after the date of the payment.
Exception. If you are not legally separated under a decree of divorce or
separate maintenance, a payment under a written separation agreement, support
decree or other court order may qualify as alimony even if you are members of
the same household when the payment is made.
Liability for payments after death of recipient spouse. If you must continue
to make payments for any period after your spouse's death, none of the
payments made before or after the death are alimony.
The divorce or separation instrument does not have to expressly state that the
payments cease upon the death of your spouse if, for example, the liability
for continued payments would end under state law.
Example. You must pay your former spouse $10,000 in cash each year for 10
years. Your divorce decree states that the payments will end upon your former
spouse's death. You must also pay your former spouse or your former spouse's
estate $20,000 in cash each year for 10 years.
The $10,000 annual payments are alimony. But because the $20,000 annual
payments will not end upon your former spouse's death, they are not alimony.
Substitute payments. If you must make any payments in cash or property after
your spouse's death as a substitute for continuing otherwise qualifying
payments, the otherwise qualifying payments are not alimony. Payments may be
considered substitute payments, depending on the facts and circumstances,
to the extent that any payments are to begin, increase in amount, or become
accelerated in time as a result of your spouse's death.
Example 1. Under your divorce decree, you must pay your former spouse $30,000
annually. The payments will stop at the end of 6 years or upon your former
spouse's death, if earlier.
Your former spouse has custody of your minor children. The decree provides
that if any of those children are still minors at your spouse's death, you
must pay $10,000 annually to a trust until the youngest child reaches the age
of majority. The trust income and corpus (principal) are to be used for your
children's benefit.
These facts indicate that the payments to be made after your former spouse's
death are a substitute for $10,000 of the $30,000 annual payments. Therefore,
$10,000 of each of the $30,000 annual payments is not alimony.
Example 2. Under your divorce decree, you must pay your former spouse $30,000
annually. The payments will stop at the end of 15 years or upon your former
spouse's death, if earlier. The decree provides that if your former spouse
dies before the end of the 15─year period, you must pay the estate the
difference between $450,000 ($30,000 x 15) and the total amount paid up to
that time. For example, if your spouse dies at the end of the tenth year,
you must pay the estate $150,000 ($450,000 - $300,000).
These facts indicate that the lump-sum payment to be made after your former
spouse's death is a substitute for the full amount of the $30,000 annual
payments. Therefore, none of the annual payments are alimony. The result would
be the same if the payment required at death were to be discounted by an
appropriate interest factor to account for the prepayment.
Child support. A payment that is fixed or treated as fixed as child support
under your divorce or separation instrument is not alimony. A payment is fixed
as child support if your instrument specifically designates an amount or part
of the payment as support for your child. The designated amount or part may
vary from time to time. Child support payments are neither deductible by the
payer, nor taxable to the payee.
A payment will be treated as fixed as child support if the payment is reduced
either:
1) On the happening of a contingency relating to your child, or
2) At a time that can be clearly associated with the contingency.
A payment may be treated as fixed as child support even if other separate
payments are specifically designated as child support.
Contingency relating to your child. A contingency relates to your child if it
depends on any event relating to that child. It does not matter whether the
event is certain or likely to occur. Events relating to your child include:
Reaching a specified age or income level,
Dying,
Marrying,
Leaving school,
Leaving the household, or
Becoming employed.
Clearly associated with a contingency. Payments are presumed to be reduced at
a time clearly associated with the happening of a contingency relating to your
child only in the following situations.
1) The payments are to be reduced not more than 6 months before or after the
date the child will reach 18, 21, or local age of majority.
2) The payments are to be reduced on two or more occasions that occur not
more than one year before or after a different child reaches a certain
age from 18 to 24. This certain age must be the same for each child, but
need not be a whole number of years.
In all other situations, reductions in payments are not treated as clearly
associated with the happening of a contingency relating to your child.
Either you or the IRS may defeat the presumption in the two situations above.
This is done by showing that the time at which the payments are to be reduced
was determined independently of any contingencies relating to your children.
For example, you can defeat the presumption by showing that alimony payments
are to be made for a period customarily provided in the local jurisdiction,
such as a period equal to one-half of the duration of the marriage.
Minimum term rule. This rule applies only to payments made under a decree of
divorce or separate maintenance, or a written separation agreement, executed
in 1985 or 1986. Under this rule, the part of an annual payment that is more
than $10,000 is not alimony unless payments will be made for at least 6
consecutive calendar years beginning with the first year alimony is paid.
To determine the first year alimony was paid, disregard payments under a
support decree or other court order. Consider only payments qualifying as
alimony under a decree of divorce or separate maintenance, or a written
separation agreement. In determining whether a payment will be made in
any future year, ignore the possible termination of payments because of a
contingency (other than the passage of time) that has not yet happened, unless
the contingency causes part of the payment to be treated as child support.
Example. Under your divorce decree, you must pay your former spouse $20,000 in
each of the 5 calendar years 1986 through 1990. You are to make no payment in
1991.
Under the minimum term rule, only $10,000 of each annual payment will be
alimony. If the divorce decree also required you to pay $1 in 1991, the full
$20,000 annual payments would be alimony.
Exception. If a divorce or separation instrument executed in 1985 or 1986 is
modified to specify that the 1986 Tax Reform Act changes are to apply, the
minimum term rule will not apply to the tax year in which the modification
is made and all later years.
How to Deduct Alimony Paid
You can deduct alimony you paid, whether or not you itemize deductions on your
return. Enter the alimony on line 29 of Form 1040. You cannot use Form 1040A
or Form 1040EZ.
In the space on line 29, enter your spouse's or former spouse's social
security number. If you do not, you may have to pay a $50 penalty and your
deduction may be disallowed.
If you paid alimony to more than one person, enter the social security number
of one of the recipients. Show the social security number and amount paid for
each recipient on an attached statement. Enter your total payments on line 29.
How to Report Alimony Received
Report alimony you received on line 11 of Form 1040. You cannot use Form 1040A
or Form 1040EZ.
You must give the person who paid the alimony your social security number.
If you do not, you may have to pay a $50 penalty.
Recapture Rule
If your alimony payments decrease or terminate during the first 3 calendar
years, you may be subject to the recapture rule. If you are subject to this
rule, you have to include in income in 1992 part of the alimony payments you
deducted in 1990 and 1991. Your spouse can deduct in 1992 part of the alimony
payments included in income in those previous years.
The 3─year period starts with the first calendar year you make a payment
qualifying as alimony under a decree of divorce or separate maintenance, or
a written separation agreement. The second and third years are the next 2
calendar years, whether or not payments are made during those years.
The reasons for a reduction or termination of alimony payments can include:
A failure to make timely payments,
A change in your instrument,
A reduction in your spouse's support needs, or
A reduction in your ability to provide support.
Subject to recapture for 1992. You are subject to the recapture rule for 1992,
if you answer "Yes" to all the following questions.
1) Was 1990 the first year in which you made alimony payments to this
spouse under a decree of divorce or separate maintenance, or a written
separation agreement?
2) Were your payments in 1990 or 1991 more than $15,000?
3) Were your payments reduced by more than $15,000 during the
3-calendar-year period ending in 1992?
4) Were your payments reduced for a reason other than the death of either
spouse or the remarriage of the spouse receiving the payments?
In answering these questions do not include payments under a temporary support
order before your divorce or separation. Also, do not include payments
required over a period of at least 3 calendar years of a fixed part of your
income from a business or property, or from compensation for employment or
self-employment. These payments are not subject to the recapture rule.
Including the recapture in income. If you must include a recapture amount
in income, show it on Form 1040, line 11 ("Alimony received"). Cross out
"received" and write "recapture." On the dotted line next to the amount,
enter your spouse's last name and social security number.
Deducting the recapture. If you can deduct a recapture amount, show it on Form
1040, line 29 ("Alimony paid"). Cross out "paid" and write "recapture." In the
space provided, enter your spouse's social security number.
Figuring the recapture. Both you and your spouse can use the filled-in
worksheet in this chapter, substituting your own figures, to figure
recaptured alimony. Publication 504 has a blank worksheet for your use.
Example. Myrna pays Phil the following amounts of alimony under their 1990
divorce decree:
Year Amount
1990 $60,000
1991 40,000
1992 20,000
The recaptured alimony is $22,500, as shown in a filled-in Worksheet for
Recapture of Alimony
Myrna shows $22,500 as income on line 11 of her 1992 Form 1040. Phil deducts
$22,500 on line 29 of his 1992 Form 1040.
Instruments executed before 1987. Generally, alimony paid under an instrument
executed before 1987 is no longer subject to recapture. Get Publication 504
if you need more information.
Worksheet for Recapture of Alimony
(For instruments executed after 1986)
Note: Do not enter less than zero on any line.
1. Alimony paid in 2nd year .................... $40,000
----------
2. Alimony paid in 3rd year .......... $20,000
----------
3. Floor ............................. $15,000
----------
4. Add lines 2 and 3 ........................... $35,000
----------
5. Subtract line 4 from line 1 ............................ $5,000
--------
6. Alimony paid in 1st year .................... $60,000
--------
7. Adjusted alimony paid in
2nd year (line 1 less line 5) ..... $35,000
--------
8. Alimony paid in 3rd year .......... $20,000
--------
9. Add lines 7 and 8 ................. $55,000
--------
10.Divide line 9 by 2 ................ $27,500
--------
11.Floor ............................. $15,000
--------
12.Add lines 10 and 11 ......................... $42,500
--------
13.Subtract line 12 from line 6 ........................... $17,500
--------
14.Recaptured alimony. Add lines 5 and 13 ................. * $22,500
--------
*If you deducted alimony paid, report this amount as income on line 11,
Form 1040.
If you reported alimony received, deduct this amount on line 29, Form
1040.
Part V. Standard Deduction and Itemized Deductions