IRS Alimony Deduction
Few things are more irritating than regularly writing a check to your ex from your earnings, but the Internal Revenue Service provides a silver lining. Your ex pays taxes on this money – not you. Alimony is fully deductible on Line 31 of your tax return. It's an above-the-line deduction, so it reduces your adjusted gross income, and this can have other tax advantages. You do have to abide by certain rules, however.
Your Divorce Order
Your divorce decree or judgment must confirm that the payments you give your ex are alimony, spousal support or spousal maintenance. Ideally, your decree spells this out in no uncertain terms. If the wording is ambiguous or implies otherwise, you might have a problem. You can't deduct money you give out of the kindness of your heart if it's not court-ordered. Temporary or pendente lite orders that provide for support while your divorce is pending are acceptable. Your court order does not necessarily have to be a final decree.
Nature of Payments
Your payments must be in cash or made by money order or check. If you give your ex the house in your divorce without taking something in exchange, the IRS doesn't consider your financial loss to be alimony. This is property settlement and it's not deductible. Child support isn't deductible either, so if you're paying both, the wording of your decree should clearly establish which payments are which. You might also have a problem if your alimony obligation ends when your youngest child emancipates and flies the nest, or some other milestone is reached regarding your children. In the eyes of the IRS, this ties your alimony obligation to support of your children and it creates a gray area.
Although you don't actually have to be divorced to claim an alimony deduction – a temporary court order or separation agreement will suffice – you and your spouse cannot reside together, and you can't file a joint married return if you're not legally divorced yet. Payments made to a third party can qualify – such as if you're ordered to pay your spouse's mortgage on her behalf – provided that you don't own the home. Your personal assets can't benefit from the alimony payments.
The greatest hitch to claiming an alimony deduction is the recapture rule. The IRS is leery of property settlements masquerading as spousal support, so they scrutinize your payments during the first three years after your divorce. If during the first three years your annual alimony payments drop by $15,000 or more, you must "recapture" your deduction. This means you must go back and pay income taxes on the money you previously wrote off as alimony. Exceptions exist if alimony ordered in your final decree is substantially less than what was provided for in a temporary order, if your payments stop because your ex died or because she remarried, or if they decrease because you suffered a loss that affected your income and you can no longer continue paying the amount in your original order.
Beverly Bird has been writing professionally for over 30 years. She specializes in personal finance and w, bankruptcy, and she writes as the tax expert for The Balance.