Wiley Tax Preparer: A Guide to Form 1040

CHAPTER 18

Alimony

Alimony is a series of regular payments made under a divorce or separation agreement from one former spouse to the other. Alimony is included in the gross income of the recipient spouse and claimed as an above-the-line deduction by the payer spouse. The payments must meet certain requirements to be treated as alimony.

Payments made for a couple's child or children are not alimony but rather child support. Child support is not deductible by the payer spouse and is not income to the recipient spouse.

Payments representing a property settlement are not alimony. There is no immediate gain recognized when property is transferred to a spouse or former spouse because of divorce or legal separation. The recipient spouse essentially takes over the basis of the other spouse and will report gain when the property is eventually sold.

If alimony payments are structured in such a way that the payments are too large in the first few years, there may be recapture required by the payer spouse. The recipient spouse may be entitled to a deduction for the recaptured amount.

A divorce may also affect tax issues other than alimony and child support payments. For example, if a divorce becomes final before the end of the year, it changes the taxpayers' filing status (see Chapter 2). Dependency exemptions may also be an issue for a child of divorced parents (see Chapter 3).

Payments that Are Alimony

ALERT: Different tax rules apply to payments made under a divorce decree or other ...