Tax Deductions: Alimony Payments

EG Conley writes: If your marriage breaks up and you make payments to your ex-spouse, those payments may qualify as deductions on your tax return – or they might not.  On the other hand, payments which are deductible by one spouse are included in the taxable income of the spouse receiving the payments. Many factors are involved in negotiating a divorce decree or separation agreement, and tax considerations should be one of those factors. Don’t assume that any payments you make will be tax deductible. The IRS has specific rules for the tax treatment of payments to a former spouse. Consider the requirements below and consult your tax advisor in order to get your desired tax results.

Requirements for Deductible Alimony

A payment must meet the following requirements to qualify as deductible alimony on your federal income tax return:

• No voluntary payments: The payment must be pursuant to a written divorce or separation agreement. Payments made voluntarily, or amounts above those required by the written agreement, cannot be deducted on your tax return.
• Payments must be made directly to your ex or on behalf of your ex: Payments to third parties under the terms of the agreement, such as direct payment of rent or mortgage on behalf of the former spouse, can qualify.
• Payments must stop at death: The payments must be required, whether by terms of the agreement or under state law, to stop when the former spouse dies. If the payments are to continue after the spouse dies (i.e. to the spouse’s estate), then none of the payments – including those made while the spouse is alive – are deductible.
• Cash only: The payments must be made in cash or cash equivalent to be taken as a tax deduction.
• Child support doesn’t qualify: Payments that are considered child support don’t qualify as alimony. This includes payments that are clearly noted as child support in the agreement, and payments which the agreement denotes as alimony but which are linked to a contingency related to a child. For example, if “alimony” is required at $2,000 per month, but it decreases to $1,500 when a child turns 18, then the $500 difference is nondeductible child support.
• Terms of the agreement: The divorce or separation agreement cannot state that the payments are not alimony.
• Must live apart: You must be living apart for the payments to qualify as alimony.