As a general rule, alimony that you receive is taxable as income and alimony that you pay can be claimed as a tax deduction. However, in order to claim your alimony payments as tax deductions, they must first meet strict IRS requirements to be considered alimony.
The requirements for payments to an ex-spouse to be considered alimony are as follows:
- The payments must be in cash or cash equivalent, such as checks or money orders. Neither services performed nor real property will qualify as alimony.
- If you and your spouse are legally separated, you must not be members of the same household at the time the payments are made.
- The payments must be pursuant to a divorce decree or separation instrument, such as a separation agreement, or any type of court order requiring you to make maintenance payments to your ex-spouse.
- The payments cannot be treated as child support or in any way be linked to anything having to do with child support. Child support is not tax deductible. Therefore, if you link your alimony payments to anything pertaining to raising your children, you risk the IRS disallowing your deductions as forms of child support, which in turn may result in the IRS suing you for unpaid taxes. For instance, the termination of your alimony payments, as specified in your divorce decree or separation agreement, should not be linked to your children reaching a certain age.
- The payments cannot be designated as non-alimony payments in your divorce decree or separation agreement. On the other hand, you can render payments non-deductible in the same manner. This designation can be useful if you do not need the deduction and your ex-spouse does not want to report the income, such as in rare cases where the receiving spouse is in a higher tax bracket than the paying spouse and wants to avoid the added tax burden.
Summary
As a general rule, you can claim your alimony payments as tax deductions if 1) they are paid in cash or a cash equivalent, (2) you don’t live with your ex, (3) they are pursuant to a divorce decree or separation instrument, (4) they are not child support and (5) they are not not designated as a non-alimony payment in your divorce decree or separation instrument. Refer to an experienced family law attorney for further questions regarding the tax benefits you may be eligible to receive to as a result of making alimony payments.
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