A typical question from a divorcing taxpayer is whether or not alimony paid to an ex-spouse or separated spouse can be claimed as a tax deduction when filing income taxes.
When dealing with a divorce, not much is deductible, but alimony and spousal support certainly is.
You have to be aware of the particular rules that apply in order to deduct alimony or spousal support payments on your income taxes.
To be deductible, alimony must meet the very specific definition. This applies to divorces in Massachusetts and throughout the United States. And note that in order for one person to receive the tax deduction, the recipient must claim the support received as income.
All of the following conditions must be met in order to classify payments as tax deductible alimony:
- Payments are required by a divorce or separation agreement
- Payer and recipient spouse do not file a joint tax return
- Payment is in cash or check
- Payment is not designated as “not alimony”
- Divorced and legally separated spouses are not members of the same household when the payments are made (as long as one spouse leaves the household within one month of the payment then the two are considered not members of the same household)
- Payments cease upon the death of the receiving spouse (if part of the payment would continue after death, that part of the payment is considered not to be alimony, and the remainder could still be considered alimony if all other qualifications are met)
- Payment is not treated as child support (child support from divorce or separation is never deductible)
Alimony can include payments to third parties on behalf of the recipient spouse as well. The classic example for this is payment of all or a portion of mortgage or rent costs on behalf of the recipient spouse. It may even include tuition payments made to a recognized program where the spouse is enrolled.
One minefield to avoid is anything in the agreement that could potentially lead to the alimony being reclassified as child support. Another minefield includes “alimony recapture” which can occur if there is a large difference in payments from one year to the next over a certain period. In both situations, past tax deductions may be eliminated and potentially lead to a recalculation of tax liability including penalties and interest.
This question highlights the need for bringing a competent financial or tax professional into the picture to help evaluate the financial terms of any proposed divorce agreement. Too often, taxpayers are not familiar with the impact of all that is contained in a divorce settlement and even competent legal counsel may miss something or not be aware of the tax ramifications.
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