37.7 3rd Year Recapture If Alimony Drops by More Than $15,000

The recapture rules are designed to prevent the so-called “front loading” of property settlement payments disguised as alimony. However, the rules apply even where no property settlement was intended if you come within their terms. For example, the recapture rules may be triggered where several scheduled payments in the first year are missed and paid in the second year.

In general, deductible payments you make in the first year or second year are recaptured (that is, reported as income) in the third year where payments within the first three years decline by more than $15,000. The three years are called “post-separation years.” The first post-separation year is the first calendar year in which you make a payment qualifying as alimony under a decree of divorce or separate maintenance or a separation agreement. The period does not begin with the year of the decree or agreement if no payments are made. Recapture does not apply to temporary support payments made before the final decree or agreement. The second and third post-separation years are the next two calendar years after the first post-separation year whether or not payments are made during those years.

Payments made in the second post-separation year are recaptured if the payments exceed the payments made in the third post-separation year by more than $15,000. Payments made in the first post-separation year are recaptured if they exceed the average payments made in the second post-separation year and the third post-separation year by more than $15,000. The Examples below illustrate how to make these computations.

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image Filing Tip
Reporting Recapture on Your Return
The payer-spouse reports the recaptured amount as income in the third year and the payee-spouse claims a deduction for the same amount. The payer reports the recaptured amount on Form 1040, Line 11 (alimony received); cross out “received” and write “recapture” along with the payee-spouse’s Social Security number.
The payee-spouse deducts the recaptured amount on Form 1040, Line 31a (alimony paid). He or she crosses out the word “paid” and writes “recapture,” and also enters on that line the payer-spouse’s Social Security number.
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When recapture does not apply.

Recapture is not triggered if payments in both the first and second post-separation years do not exceed $15,000. Recapture also does not apply to:

  • Payments made under a continuing liability to pay for at least three years a fixed part of your income from a business or property or from a job or self-employed business or profession, or
  • Payments that end because of your death or the death of your former spouse or the remarriage of your former spouse at any time before the end of the third post-separation year.

The steps of recapture are:

Step 1. Recapture for the second-year payment is computed first. This is the excess, if any, of the second-year payment over the third-year payment, minus $15,000.
Step 2. Recapture for the first-year payment is computed next. There is recapture if the first-year payment exceeds by more than $15,000 the average payment made in the second and third years. In figuring the average payment, reduce the second-year payment by any recapture amount for the second year figured under Step 1.

EXAMPLES
1. In 2010, Jones obtains a divorce and pays deductible alimony of $50,000. His wife reports $50,000 as income. In 2011 and 2012, he makes no payments. On his 2012 return, $35,000 of the first year (2010) deduction is recaptured ($50,000 − $15,000) and reported as income by Jones. His ex-spouse deducts the recaptured $35,000 on her 2012 return.
2. In 2010, Smith makes his first alimony payment of $50,000; in 2011 he pays $20,000 and in 2012 he pays nothing. On his 2012 return, $32,500 is recaptured as follows:
Recapture of second-year payment:
 Payment in 2nd year $20,000
  Less: 3rd-year payment       $0
  Less: Allowance 15,000   15,000
  Recapture for second year    $ 5,000
Recapture of first-year payment:  
  Average calculation:  
  Payment over the 2nd and 3rd years $20,000
  Less: recapture in the 2nd year  $ 5,000
$15,000
  Average ($15,000 ÷ 2) $ 7,500
  Payment in first year $50,000
  Less: Average $ 7,500
  Less: Allowance  15,000   22,500
  Recapture for first year $27,500
Total recaptured in 2012:
  For second year $ 5,000
  For first year $27,500
  Total: $32,500

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