Publication 504 |
2001 Tax Year |
Alimony
Alimony is a payment to or for a spouse or former spouse under a
divorce or separation instrument. It does not include voluntary
payments that are not made under a divorce or separation instrument.
Alimony is deductible by the payer and must be included in the
spouse's or former spouse's income. Although this discussion 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. These
requirements are discussed later.
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. This
includes a temporary decree, an interlocutory (not final) decree, and
a decree of alimony pendente lite (while awaiting action on
the final decree or agreement).
Invalid decree.
Payments under a divorce decree can be alimony even if the decree's
validity is in question. A divorce decree is valid for tax purposes
until a court having proper jurisdiction holds it invalid.
Amended instrument.
An amendment to a divorce decree may change the nature of your
payments. Amendments are not ordinarily retroactive for federal tax
purposes. However, a retroactive amendment to a divorce decree
correcting a clerical error to reflect the original intent of the
court will generally be effective retroactively for federal tax
purposes.
Example 1.
A court order retroactively corrected a mathematical error under
your divorce decree to express the original intent to spread the
payments over more than 10 years. This change also is effective
retroactively for federal tax purposes.
Example 2.
Your original divorce decree did not fix any part of the payment as
child support. To reflect the true intention of the court, a court
order retroactively corrected the error by designating a part of the
payment as child support. The amended order is effective retroactively
for federal tax purposes.
Deducting alimony paid.
You can deduct alimony you paid, whether or not you itemize
deductions on your return. You must file Form 1040. You cannot use
Form 1040A or Form 1040EZ.
Enter the amount of alimony you paid on line 31a (Form 1040). In
the space provided on line 31b, enter your spouse's social security
number.
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 to each other recipient on an attached
statement. Enter your total payments on line 31a.
If you do not provide your spouse's social security number, you may
have to pay a $50 penalty and your deduction may be disallowed.
Reporting 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.
Withholding on nonresident aliens.
If you are a U.S. citizen or resident and you pay alimony to a
nonresident alien spouse, you may have to withhold income tax at a
rate of 30% (or lower treaty rate) on each payment. For more
information, get Publication 515,
Withholding of Tax on
Nonresident Aliens and Foreign Entities.
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:
- Child support,
- Noncash property settlements,
- Payments that are your spouse's part of community income, as
explained later under Community Property,
- Payments to keep up the payer's property, or
- Use of property.
Example.
Under your written separation agreement, your spouse lives
rent-free in a home you own and you must pay the mortgage, real estate
taxes, insurance, repairs, and utilities for the home. Because you own
the home and the debts are yours, your payments for the mortgage, real
estate taxes, insurance, and repairs are not alimony. Neither is the
value of your spouse's use of the home.
If they otherwise qualify, you can deduct the payments for
utilities as alimony. Your spouse must report them as income. If you
itemize deductions, you can deduct the real estate taxes and, if the
home is a qualified home, you can also include the interest on the
mortgage in figuring your deductible interest.
Child support.
To determine whether a payment is child support, see the separate
discussions under Instruments Executed After 1984 or
Instruments Executed Before 1985, later.
Underpayment.
If both alimony and child support payments are called for by your
divorce or separation instrument, and you pay less than the total
required, the payments apply first to child support and then to
alimony.
Example.
Your divorce decree calls for you to pay your former spouse $200 a
month as child support and $150 a month as alimony. If you pay the
full amount of $4,200 during the year, you can deduct $1,800 as
alimony and your former spouse must report $1,800 as alimony received.
If you pay only $3,600 during the year, $2,400 is child support. You
can deduct only $1,200 as alimony and your former spouse must report
$1,200 as alimony received.
Payments to a third party.
Cash payments (including checks and money orders) 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. These include
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.
Example 1.
Under your divorce decree, you must pay your former spouse's
medical and dental expenses. If the payments otherwise qualify, you
can deduct them as alimony on your return. Your former spouse must
report them as alimony received and can include them in figuring
deductible medical expenses.
Example 2.
Under your separation agreement, you must pay the real estate
taxes, mortgage payments, and insurance premiums on a home owned by
your spouse. If they otherwise qualify, you can deduct the payments as
alimony on your return, and your spouse must report them as alimony
received. If itemizing deductions, your spouse can deduct the real
estate taxes and, if the home is a qualified home, also include the
interest on the mortgage in figuring deductible interest.
Life insurance premiums.
Alimony includes premiums you must pay under your divorce or
separation instrument for insurance on your life 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 or former spouse,
some of your payments may be alimony. See Table 2.
Table 2. Expenses for a Jointly-Owned Home
Instruments Executed After 1984
The following rules for alimony apply to payments under divorce or
separation instruments executed after 1984.
Exception for instruments executed before 1985.
There are two situations where the rules for instruments executed
after 1984 apply to instruments executed before 1985.
- A divorce or separation instrument executed before 1985 and
then modified after 1984 to specify that the after-1984 rules will
apply.
- A temporary divorce or separation instrument executed before
1985 and incorporated into, or adopted by, a final decree executed
after 1984 that:
- Changes the amount or period of payment, or
- Adds or deletes any contingency or condition.
For the rules for alimony payments under pre-1985 instruments not
meeting these exceptions, see Instruments Executed Before 1985,
later.
Example 1.
In November 1984, you and your former spouse executed a written
separation agreement. In February 1985, a decree of divorce was
substituted for the written separation agreement. The decree of
divorce did not change the terms for the alimony you pay your former
spouse. The decree of divorce is treated as executed before 1985.
Alimony payments under this decree are not subject to the rules for
payments under instruments executed after 1984.
Example 2.
Assume the same facts as in Example 1 except that the
decree of divorce changed the amount of the alimony. In this example,
the decree of divorce is not treated as executed before 1985. The
alimony payments are subject to the rules for payments under
instruments executed after 1984.
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 with
each other and all the following requirements are met.
- The payment is in cash.
- The instrument does not designate the payment as not
alimony.
- The spouses are not members of the same household at the
time the payments are made. This requirement applies only if the
spouses are legally separated under a decree of divorce or separate
maintenance.
- There is no liability to make any payment (in cash or
property) after the death of the recipient spouse.
- The payment is not treated as child support.
Each of these requirements is discussed below.
Payment must be in cash.
Only cash payments, including checks and money orders, qualify as
alimony. The following do not 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 by the payor.
- The use of property.
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.
- The payments are in lieu of payments of alimony directly to
your spouse.
- The written request states that both spouses intend the
payments to be treated as alimony.
- 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 can designate that otherwise qualifying
payments are not alimony. You do this by including a provision in your
divorce or separation instrument that states the payments are not
deductible as alimony by you and are excludable from your spouse's
income. For this purpose, any instrument (written statement) 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 later temporary support
order.
Your spouse can exclude the payments from income only if he or she
attaches a copy of the instrument designating them as not alimony to
his or her return. The copy must be attached 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 legally 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 no later 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
death of your spouse would not terminate these payments under state
law.
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. To the
extent that your payments begin, accelerate, or increase because of
the death of your spouse, otherwise qualifying payments you made may
be treated as payments that were not alimony. Whether or not such
payments will be treated as not alimony depends on all the facts and
circumstances.
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 child is still a minor 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. $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 × 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. 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 specifically designated as child support or
treated as specifically designated as child support under your divorce
or separation instrument is not alimony. 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.
Specifically designated as child support.
A payment will be treated as specifically designated as child
support to the extent that the payment is reduced either:
- On the happening of a contingency relating to your child,
or
- At a time that can be clearly associated with the
contingency.
A payment may be treated as specifically designated 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 the
child's:
- Becoming employed,
- Dying,
- Leaving the household,
- Leaving school,
- Marrying, or
- Reaching a specified age or income level.
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.
- 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.
- The payments are to be reduced on two or more occasions that
occur not more than one year before or after a different one of your
children 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 can overcome 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, if you can show
that the period of alimony payments is customary in the local
jurisdiction, such as a period equal to one-half of the duration of
the marriage, you can treat the amount as alimony.
Recapture of Alimony
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 the third year
part of the alimony payments you previously deducted. Your spouse can
deduct in the third year part of the alimony payments he or she
previously included in income.
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. Do not include any time
in which payments were being made under temporary support orders. 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 that
can require a recapture include:
- A change in your divorce or separation instrument,
- A failure to make timely payments,
- A reduction in your ability to provide support, or
- A reduction in your spouse's support needs.
When to apply the recapture rule.
You are subject to the recapture rule in the third year if the
alimony you pay in the third 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 pay in the first year.
When you figure a decrease in alimony, do not include the following
amounts.
- Payments made under a temporary support order.
- 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.
- Payments that decrease because of the death of either spouse
or the remarriage of the spouse receiving the payments.
How to figure and report the recapture.
Both you and your spouse can use Table 3 to figure
recaptured alimony.
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
31a ("Alimony paid"). Cross out "paid" and write
"recapture." In the space provided, enter your spouse's social
security number.
Example.
You pay your former spouse $50,000 alimony the first year, $39,000
the second year, and $28,000 the third year. You complete Table
3 as shown on Filled-in Table 3. In the third year,
you report $1,500 as income on line 11, Form 1040, and your former
spouse reports $1,500 as a deduction on line 31a, Form 1040.
Table 3. Worksheet for Recapture of Alimony
Filled-in Table 3. Worksheet for Recapture of Alimony
Instruments Executed Before 1985
The following rules for alimony apply to payments under divorce or
separation instruments executed before 1985.
Exception.
There are two situations where the rules for instruments executed
after 1984 apply to instruments executed before 1985.
- A divorce or separation instrument executed before 1985 and
modified after 1984 to specify that the after-1984 rules will
apply.
- A temporary divorce or separation instrument executed before
1985 and incorporated into, or adopted by, a final decree executed
after 1984 that:
- Changes the amount or period of payment, or
- Adds or deletes any contingency or condition.
If an exception applies, see Instruments Executed After
1984, earlier.
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
the payment meets both of the following requirements.
- It is based on the marital or family relationship.
- It is not child support.
In addition, the spouses must be separated and living apart for
a payment under a separation agreement or court order to qualify as
alimony.
Payments of a fixed sum.
If you must pay a fixed sum in installments, your payments during
the year that you treat as alimony cannot be more than 10% of the
fixed sum. This limit applies to payments for the current year and
payments in advance, but not to late payments for an earlier year.
However, do not treat any part of a late installment payment as
alimony if the fixed sum was payable over a period ending 10 years or
less from the date of the divorce or separation instrument.
Payments subject to contingencies.
Payments are not considered installment payments of a fixed sum if
they are to end or change in amount on the happening of one or
more of the following contingencies.
- The death of you or your spouse.
- The remarriage of your spouse.
- A change in the economic status of you or your
spouse.
The contingency may be either specified in your instrument or
imposed by local law.
Marital or family relationship.
To be alimony, your payments must be based on your obligation,
because of the marital or family relationship, to continue supporting
your spouse. Any payment that does not arise out of that support
obligation, such as the repayment of a loan, is not alimony.
Property settlement.
Payments are not based on your obligation to continue support if
they are a settlement of property rights. However, even if a state
court describes payments made under a divorce decree as payments for
property rights, they are alimony if they are made to fulfill a legal
support obligation and they otherwise qualify.
Child support.
A payment that is specifically designated as child support under
your divorce or separation instrument is not alimony. If the
instrument calls for payments that otherwise qualify as alimony and
does not separately designate an amount as child support, all the
payments are alimony. This is true even if the payments are subject to
a contingency relating to your child.
Example.
Your divorce decree states that you must pay your former spouse
$400 a month for life for the support of your former spouse and your
child. The payment is to be reduced to $300 upon the first of the
following to happen: the child's death, the child's 22nd birthday, or
the child's marriage. Despite these contingencies, no amount of child
support is fixed by the decree. The entire payment is alimony.
Alimony Trusts, Annuities,
and Endowment Contracts
If you transferred property to a trust or bought or transferred an
annuity or endowment contract to pay the alimony you owe, the trust
income or other proceeds that would ordinarily be includible in your
income must be included in your former spouse's income as alimony
received. You do not include the payments in your income, nor can you
deduct them as alimony paid. This rule applies whether the proceeds
are from the earnings or the principal of the transferred property. It
does not apply to any trust income that is fixed for child support.
Example.
You must make monthly alimony payments of $500. You bought your
former spouse a commercial annuity contract paying $500 a month. Your
former spouse must include the full amount received under the contract
in income, as alimony. It does not matter whether the amount is paid
out of principal or interest. You do not include any part of the
payment in your income, nor can you deduct any part.
Annuity and endowment contracts.
Proceeds from annuity and endowment contracts bought for or
transferred to a spouse after July 18, 1984, cannot be treated as
alimony. However, this does not apply to contracts bought or
transferred to pay alimony under a divorce or separation instrument
executed before July 19, 1984, unless both spouses choose to have it
apply.
Proceeds not alimony.
If the proceeds from an annuity or endowment contract cannot be
treated as alimony, the amount received is reduced by the cost of the
contract. Get Publication 575,
Pension and Annuity Income,
for information on reporting annuities, and Publication 525,
Taxable and Nontaxable Income, for information on reporting
endowment proceeds.
If the proceeds from a trust cannot be treated as alimony, see the
rules for reporting trust income in Publication 525.
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