Taxation-Alimony

If you pay $150,000 in alimony in year 1; $30,000 in year 2 and $30,000 in year 3, is any portion of this amount subject to recapture?

$105,000. I have no idea how that was calculated. There is a worksheet.

"Recapture" refers to what?

The IRS's right to force the payor of alimony to pay back to the IRS TAX BENEFITS received as a result of alimony payments made to his or her former spouse during those first three years. (After the third full year, the concept of recapture becomes irrelevant.)

How much of mortgage payments can be considered alimony if you and your spouse jointly own the home and you have been ordered to pay 100% of the mortgage payments?

You can deduct 1/2 of the total payments as alimony.

If you or your spouse itemize deductions and you have been paying 100% of the principal and interest on the mortgage note, what happens to the interest on tax returns?

You each can claim 1/2 the mortgage interest on your tax return.

If both alimony and child support payments are called for by your divorce decree or separation instrument, and you pay less than the total required, the payments are applied first to...

child support

If you are subject to the recapture rule, what happens?

You have to include in income in the 3rd year part of the alimony payments you deducted in the previous years. Your spouse can deduct from her income in the 3rd year part of the alimony payments he or she previously included in income.

Can cash payments to third parties on behalf of the payee spouse be considered alimony?

Yes, provided the payor must do sunder under the terms of a divorce or separation agreement.

Example: Under your divorce decree, you must pay your former spouse $30,000 per year alimony. The payments stop at the end of 6 years or your spouse's death, whichever is earlier. Your former spouse has custody of your three children. The decree provides that if any child is still a minor at your spouse's death, you must pay $10,000 per year into a trust until age of majority. What part, if any, of the $30,000 payments are alimony?

$20,000/year before death.

5 examples of payments or benefits which are not considered alimony:

(1) child support; (2) noncash property settlements (3) payments of 1/2 of community income (4) payments to keep up the payor's property (5) Use of the payor's property.

What are 4 examples of payments to third parties which can be considered alimony payments?

(1) payment of a spouse's medical expenses; (2) housing costs including rent, utilities, etc; (3) taxes, and (4) tuition. The payments are treated as received by your spouse and then paid to the third party.

***A payment to or for a spouse under a divorce decree or separation instrument is alimony if the spouses do not file a joint return and ALL the following 5 requirements are met:

***(1) the payment is in CASH (not services or property or a promissory note/debt instrument or an annuity contract or use of the payor's property) (2) the instrument does not designate the payment as not alimony (3) the spouses are not members of the same household (4) THERE IS NO OBLIGATION TO MAKE THE PAYMENT AFTER DEATH; (5) the payment is not treated as child support.

The tax benefits of paying alimony will be recaptured by the IRS if...

...in the 3rd year after your alimony payments commence, you pay greater than $15,000 less in alimony than you paid in the 2nd year. Or, if, during the 2nd and 3rd years, you pay "significantly less" in alimony than you paid in the 1st year.

4 ways a reduction or end of alimony payments can trigger a recapture include:

1. A change in your divorce or separation instrument, 2. A failure to make timely payments, 3. A reduction in your ability to provide support, or 4. A reduction in your spouse's support needs.

What are the 3 exceptions to the "recapture" rule if there is a decrease or termination over the 3 year period?

1. you made alimony payments varied because they were a % of your income from a business, property, employment-compensation, or self-employment compensation; or 2. your alimony payments decreased as a result of your ex-spouse's death; or 3. your alimony payments stopped because the spouse receiving alimony got remarried before the end of the 3rd year post separation period.

If you pay 100% of real estate taxes and homeowner's insurance on a home owned jointly as part of an alimony decree, how much do you get to deduct on your tax return?

50%

If you itemize your deductions and you have been paying 100% of the real estate taxes and homeowner's insurance as part of an alimony decree, what do you get to deduct on your tax return?

50% of the real estate taxes and none of the home owner's insurance.

If the home is held as "tenants by the entirety" or "joint tenants", how much of your payments for taxes or insurance can be deducted if your itemize your deductions?

50% of the taxes and none of the homeowner's insurance.

What does "tenants by the entirety mean?"

A deed held as tenants by the entirety carries survivorship rights. This means that if either you or your spouse dies, the other automatically retains 100 percent ownership of the entire property. This is similar to a joint tenancy with rights of survivorship: when one joint tenant dies, the other automatically receives his interest in the property. In both cases, the transfer bypasses probate. This is distinctly different from ownership held as tenants in common. Tenants in common can bequeath their ownership shares to whomever they like.

Definition of alimony for tax purposes:

A payment to or for a spouse or former spouse under a divorce or separation instrument.

How is alimony depicted on a tax return for the payor and payee?

Alimony is income to the recipient and a deduction for the payor.

What does tenants in common mean in Louisiana language?

Co-ownership.

What is the "alimony recapture" rule designed to do?

Designed to prevent front loading of alimony payments which, the IRS presumes, are actually a property distribution "disguised" as alimony to save on taxes due.

The 3 year period for recapture starts when?

In the calendar year in which you make the first payment.

If you are "tenants in their entirety" and one spouse dies, what happens to their 1/2?

It automatically passes to the other spouse outside probate.

If you are tenants in common and one spouse dies, what happens to the half owned by the dying spouse?

It can be bequeathed to whomever they like.

Is child support ever deductible on your taxes?

Never

Are voluntary payments of support not made in conjunction with a divorce or separation instrument alimony for tax purposes?

No

Example: If you allow a spouse, by court decree, to live in your home, is the spouse's use of the home deductible as alimony on your tax return?

No

If you pay $12,000 year 1; $12,000 year 2 and -0- year 3, is any portion of this amount subject to recapture?

No. -0-

If the total amount of your alimony payments must continue to be paid after death, how much is considered alimony?

None of it. Not the part paid before death and not the part paid after death.

If you must pay all of the real estate taxes and homeowner's insurance and the home is held as "tenants by the entirety or in joint tenancy" how much can you deduct as alimony? How much can you claim as an itemized expense?

None of the real estate taxes or homeowner's insurance as alimony and all of the real estate taxes and none of the homeowner's insurance as expenses.

If the home is held as "tenants by the entirety" or "joint tenants", how much of your payments for taxes or insurance are alimony?

None of them.

Example: 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, whichever occurs first. The decree provides that if your former spouse dies b/4 the end of the 15 years, you must pay the estate the difference b/t $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 year 10, you must pay the estate $150,000 ($450,000-$300,000). How much of these amounts are alimony?

None. This is presumed to be a property settlement, so none of the payments, retroactively, are considered alimony.

If you must pay all of the mortgage payments (principal and interest) and the home is jointly owned, how much can you deduct as alimony? How much can you claim as an itemized deduction?

One-half of the principal and interest payments as alimony and 1/2 of the interest as an interest expense.

If you must pay all of the real estate taxes and homeowner's insurance and the home is held as tenants in common, how much can you deduct as alimony? How much can you claim as an itemized deduction?

One-half the total payments as alimony and 1/2 of the real estate taxes and none of the homeowner's insurance as an expense.

Example: Your divorce decree calls for you to pay $200.00 per month child support and $150.00 per month spousal support. This is a total of $2400 per year c/s and $1800 per year s/s for a total of $4,200/year. You only pay $3,600 per year. What is reported on your tax return as alimony payments?

Only $1200 of alimony payments.

Are the payment of life insurance premiums considered alimony?

Only if your payee owns the policy and it is on payor's life.

Example: Pursuant to a separation agreement your spouse lives rent-free in your home. You are required to pay the mortgage, real estate taxes, insurance, repairs, and utilities for the home. Are any of these payment deductible as alimony?

Only utilities.

Are payments of expenses for a home owned by you and your spouse considered alimony?

Some may be if your divorce decree sets out that you must make these payments. Things like 1/2 the mortgage, all utilities, etc.

Example: Under your separation agreement you must pay the real estate taxes, mortgage payments and insurance payments on a home OWNED BY YOUR SPOUSE, are these payments deductible as alimony?

Yes they are because you do not own the home so these are not your debts.

If you pay $150,000 of alimony year 1, -0- in year 2 and -0- in year 3, is any portion of this amount subject to recapture?

Yes, 135,000.00

When might alimony "recapture" apply?

Where there is an award of alimony that decreases in amount during the first 3 post separation years.

If your alimony payments decrease or end during the first 3 calendar years, you may be subject to what rule?

The recapture rule.

If any part of your alimony payments must continue after the death of the recipient, the part that must continue to be made...

is not alimony whether paid before or after death.

You are subject to the recapture rule if...

the alimony you pay in the 3rd year decreases by more than $15,000 from the second year or the alimony you pay in the second and third years decreases significantly from the alimony you paid in the first year.

If you pay $12,000 year 1; $30,000 year 2 and -0- in year 3, is any portion of this amount subject to recapture?

yes