J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

37.7 3rd Year Recapture If Alimony Drops by More Than $15,000

The recapture rules are designed to prevent the so-called “front loading” of property settlement payments disguised as alimony. However, the rules apply even where no property settlement was intended if you come within their terms. For example, the recapture rules may be triggered where several scheduled payments in the first year are missed and paid in the second year.

In general, deductible payments you make in the first year or second year are recaptured (that is, reported as income) in the third year where payments within the first three years decline by more than $15,000. The three years are called “post-separation years.” The first post-separation year is the first calendar year in which you make a payment qualifying as alimony under a decree of divorce or separate maintenance or a separation agreement. The period does not begin with the year of the decree or agreement if no payments are made. Recapture does not apply to temporary support payments made before the final decree or agreement. The second and third post-separation years are the next two calendar years after the first post-separation year whether or not payments are made during those years.

Payments made in the second post-separation year are recaptured if the payments exceed the payments made in the third post-separation year by more than $15,000. Payments made in the first post-separation year are recaptured if they exceed the average payments made ...