Alimony Recapture
Alimony recapture is designed to find people who try to disguise property settlements as
. (You would want to characterize the payments as
, rather than property
settlements, to get possible tax benefits.)
In general, the tax law of alimony recapture says that if the so-called "
" payments decline
"too quickly" over the first three years, then some of the
will be recategorized as a property
settlement. The tax deduction is then taken away.
Because the determination of whether the payments are
or not does not occur until after
the third year in which
is paid, tax writers say that the government "recaptures" the
deduction. Hence the name "alimony recapture."
How much of a decline is too much? Here's a quick test: if, by the end of the third year, the
has declined by more than $15,000 from the first year, then some recapture may apply.
Gerry pays Pat
of $80,000 in year one,
$60,000 in year 2, and $30,000 in years three through five. Gerry will have to recapture
some of the claimed
tax deduction.
Click
here
for more details.
Click
here
for exceptions to alimony recapture.
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