Rules for claiming alimony payments as tax deductions

California residents who pay alimony should be aware of the rules for deducting support payments from taxes. For example, a U.S. Tax Court ruled that alimony payments cannot be claimed as deductions if they are not included in the original divorce or separation agreement. In addition, alimony is not deductible if the parties live in the same household or have a separation agreement specifying that the support payment is not taxable in some way.

The decision on including alimony in the divorce or separation agreement came after a man who divorced in 2007 claimed a bonus he split with his wife as an alimony deduction. The man earned the bonus in 2006 and filed for divorce in 2007. After filing but before the divorce was finalized, the man and his wife signed an agreement regarding the bonus. A later spousal support order included terms for temporary support, but it did not mention the bonus.

The IRS challenged the deduction. The tax court agreed that the payments was not alimony since it did not appear in any formal legal separation or divorce agreement.

A couple can negotiate spousal support with their attorneys, or a judge can make a decision about support during litigation. Spousal support is not a part of every divorce. If one spouse has a significantly higher income than the other, it is more likely that this person will pay alimony to the other. Spousal support may be temporary. If one spouse has been unemployed for a long time, the payments might be intended as support until the person is able to find a new job.

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