Alimony

[amonEA]

Client had to make to equal installments of 15k to ex wife for equity in the house. He wants to deduct as alimony. I am very hesitat because there is something to do with Property Settlements are not Alimony? IS this correct? And is this even a Property Settlement. The Taxbook says "it must not be designated in the decree that it is not alimony". Well the decree says that it is equity in the house, which it does not say this is not alimony! Help?

[Koss]

Form over Substance

I don't have the TaxBook in front of me, but here's my answer:

If the court order explicitly states that the payments are meant to compensate her for her ownership interest in the marital home, then by definition that's not alimony.

Alimony is a real-time transfer of taxable income. It lowers the AGI of the person paying the alimony, and it increases the AGI of the person receiving it. To put it another way, alimony is her share of his income. But it's not her share of property or assets.

Suppose the couple jointly owned four automobiles, with both names on each title. Now suppose that the court order reflects their agreement to simply split the vehicles. So they go down to the offices of the state motor vehicle authority, and have the four vehicles retitled. Two of them get her name only, and two of them get his name only.

That's a property transfer--not alimony. Your client's situation is almost the same, except you can't split a house. So he's buying her out.

It's not alimony.

It sounds like maybe she had a better lawyer...

BMK

[amonEA]

Alimony

Thanks,

That was really what I was thinking, but it did not seem right for some reason. Thanks for your help.

amon

[Burke]

That is a great explanation, Koss.