In a recent report, the Treasury Inspector General for Tax Administration (TIGTA) found that there is an estimated $2.3 billion gap between the amount of alimony deductions claimed by taxpayers in 2010 and the corresponding income reported.
Taxpayers who must pay alimony to a former spouse may deduct it from his/her tax return as an adjustment to income. This line includes the social security number of the recipient spouse. Conversely, the recipient spouse must report the alimony as income.
The basic rules for alimony include:
- The payments must be made due to a divorce or separate maintenance agreement;
- This includes a temporary decree, and interlocutory (not final) decree, or a decree of alimony (to be paid while waiting for the final decree or agreement);
- The payment is in cash (includes checks, money orders, or transfers);
- The spouses may not live in the same household at the time of the payments. A home you previously shared is still considered the “same” household even if you physically separate yourselves – including the basement.
- The decree may not require payments after the death of the recipient (to a third party).
- Payments designated as child support, or with a contingency based on a child, cannot be treated as alimony. Contingencies include actions such as the child becoming employed, reaching a certain age, getting married, and leaving school.
- Some payments are not deductible as alimony:
- Noncash property settlements (e.g. who gets the house, car, or boat);
- Community income (community property states only);
- Payments to keep up payer’s property; or
- Use of the payer’s property (e.g. staying in the house while it’s on the market).
There are other items that may be written into the agreement as alimony, including:
- Payments to a third payment on behalf of the ex-spouse under the terms of the divorce or separation agreement can be alimony (e.g. housing, rent, medical costs, or car payments). There must be an agreement that the payments are treated as being paid to your ex-spouse and then paid to the vendor.
- Life Insurance premiums. Premiums paid by one spouse for insurance that benefits the other spouse may count as alimony.
- Payments for a jointly-owned home. Depending on the agreement, payments for a mortgage or household expenses owned by you and your spouse may be alimony.
- Other home ownership questions: For mortgage payments, taxes, and insurance, see a qualified tax professional for help. The payments must be split between alimony and an interest deduction based on whether you are the payor or recipient spouse. This can be confusing. Ask questions before you prepare your return.
- Third party payments. If one spouse makes any third party payments for the other spouse, see IRS’ “Publication 504, Divorced or Separated Individuals.”
The IRS committed to improving its audit and compliance procedures to make sure alimony is reported by both spouses. If you aren’t sure about the payments you pay or receive, read your divorce documents carefully, or ask for help from a tax professional.
For more information, go to
www.IRS.gov/pub504.