In some cases, alimony, or spousal support, can be tax deductible. However, there are certain conditions that must be met in order to qualify.
The payment must be made "in cash."
(26 U.S.C., ?71, subds. (b)(1) & (d).) A transfer of services or property, execution of a debt instrument by the payor, or the use of property of the payor do not qualify as "cash" payments. (Treas. Reg. ?1.71-1T.) Checks are treated as cash.
The payment must be received by (or on behalf of) a spouse or former spouse.
(26 U.S.C., ?71, subd. (b)(1)(A).) The principle of constructive receipt allows payments to be made to a third party by order or agreement for the benefit of the payee spouse. "For example, cash payments of rent, mortgage, tax, or tuition liabilities of the payee spouse made under the terms of the divorce or separation instrument will qualify as alimony or separate maintenance payments." (Treas. Reg. ?1.71-1T, Q&A, A-6.)
The payments must be made under a divorce or separation instrument.
(26 U.S.C., ?71, subd. (b)(1)(A).) This includes "a decree of divorce or separate maintenance or a written instrument incident to such a decree, a written separation agreement, or [such other] decree . . . requiring a spouse to make payments for the support or maintenance of the other spouse." (26 U.S.C., ?71, subd. (b)(2).) Payments according to a modification to the initial divorce or separation instrument are also deductible. (See Priv. Ltr. Rul. 200233022 (2002).)
The decree or written instrument must be in existence at the time that the support payments are made. (Ali v. Commissioner (2004) T.C. Memo. 2004-284.) Payments made before the existence of divorce or separation instrument are not deductible, even if the instruments retroactively characterizes those prior payments as spousal support. (Id.; Rafferty v. U.S. (D. Colo. 2008) 2008 WL 2705192; 26 C.F.R., ? 1.71-1T(a), Q-4, A-4.)
The instrument does not designate payments as non-taxable to the recipient or not allowable as a deduction to the payor.
(26 U.S.C., ? 71, subd. (b)(1)(B).) There is no requirement that the instrument state that the payments will be taxable as alimony. If the parties designate the payments as non-taxable, they will be bound by the agreement and a copy of the agreement must be attached to the payee's tax return each year the designation applies. (26 C.F.R., ? 1.71-1T(b), A-8.)
The parties must not be members of the same household when payment is made, except for temporary support orders.
(26 U.S.C., ? 71, subd. (b)(1)(C).) The parties are not in "separate households" even if the spouses physically separate themselves within the dwelling unit. (26 C.F.R., ?1.71-1T, A-9.) If one spouse is preparing to depart the household and actually departs not more than one month after the support payment is made, the parties will not be treated as members of the same household for that period. (Id.)
Spousal support payments made while the parties are not "legally separated . . . under a decree of divorce or of separate maintenance" are deductible notwithstanding the fact that the parties are members of the same household when the payments are made. (26 U.S.C., ? 71, subd. (b)(1)(C); 26 C.F.R., ?1.71-1T, A-9.)
There is no liability to make payments after the death of the supported spouse, or make any payments as a substitute therefor af
(26 U.S.C., ? 71, subd. (b)(1)(D).) This requirement was apparently adopted to distinguish between true spousal support orders and a property division disguised as support. An order for maintenance or support should naturally terminated on death of the supported spouse, as "dead people require little, if any, support." (See Taft, Tax Aspects of Divorce and Separation, ? 5.03[v].) A obligation in connection with the division of marital property, on the other hand, survives the death of either party because it creates a vested property right which can be transferred on death.
The payments may not be fixed as child support or subject to a contingency related to a minor child.
(26 U.S.C., ? 171, subd. (c).) Payments specifically designated as child support are, of course, not deductible as alimony. Even when a payment is not called child support and is, instead, labeled as "alimony," the payment may nevertheless be treated as disguised child support if the amount of the payment reduces upon some contingency relating to the child, like the child turning 18-years-old. There is a safe harbor which provides that a stepdown will not be treated as "relating to that child" so long as it takes place more than six months before or after a date that the child attains 18, 21 or the local age of majority. (Treas. Reg. 1.71-1T, A-18.) Creating a family support order where there are multiple children may be nearly impossible. The support obligation may have to be extended beyond the date the payor would normally have to pay child support under state law to have the family support treated as alimony.
A joint return is not filed.
(26 U.S.C., 71(e).) The final requirement is that the parties file separate tax returns from each other. They cannot file a joint tax return together, with one claiming an alimony deduction and the other deducting the alimony paid.