In determining alimony payments, the person paying alimony needs to make sure that the “alimony recapture rule” does not apply to his or her settlement. Under the 1986 TRA rules, this “recapture rule” only applies to the payor when alimony payments decrease substantially or end during the first three calendar years. “Decrease substantially” is defined as one of two situations: 1) When the amount paid in the third year plus $15,000 is less than the amount paid in the second year, and 2) when payments in the second and third years are averaged and this average plus $15,000 is less than the payments in the first year. If either of these scenarios occurs during the first three years, then a payor will be required to “recapture” in the third post-separation year any “excess alimony” over the first and second years, hence paying and thus reporting the recapture amount as taxable income. Subsequently, the spouse receiving alimony is entitled to a deduction for the recapture amount and thus the taxable income from the first two years is negated by the third year write-off. The recapture rule is intended to prevent payors whose divorces occur near the end of the year from making deductible property settlements at the beginning of the year.
When calculating alimony recapture, the following payments are not included in the recapture rule and therefore should not be entered into our alimony recapture calculator.
Payments made under a temporary support order.
Payments required over a period of at least three calendar years based on a fixed percentage of income from a business, a property, salary or self-employment. (i.e. don’t count payments that are intended to vary according to your income if such variable payments extend over at least three years.)
Payments that decrease because of the death of either former spouse or the remarriage of the former spouse receiving the payments.
Will you owe alimony recapture? Let our alimony recapture calculator determine if this rule applies to your proposed alimony payments