If you want to determine whether a particular stream of alimony payments will result in alimony recapture, enter the first three calendar years of alimony payments in fields provided. Include any payments in the first year under a written separation agreement, but do not include payments under a Court Order for support (pendente lite order).
Alimony Recapture Rules:
Minimum term for alimony
Former six year minimum term rule eliminated by 1986 Tax Act
Alimony recapture. See IRC, Sec. 71(f).
To limit extent that non-taxable property settlements may be deducted as alimony
Rule 1: Three post-separation years (calendar years)
Rule 2: $15,000 allowable reduction between years
Rule 3: Recapture takes place in Year 3
Rule 4: If alimony is reduced by more than $15,000 from Year 2 to Year 3, the amount over $15,000 will be recaptured in Year 3 (no longer alimony for tax purposes). If alimony in Year 1 is more than $15,000 over the average of Year 2 (reduced by any recapture amount) + Year 3, any excess over $15,000 will be recaptured in Year 3
Amount of recapture will be reflected in the tax returns of both parties for the third post-separation year
Exceptions to alimony recapture. See IRC, Sec. 71(f)(5).
Either spouse dies or receiving spouse remarries
Payments under temporary support orders not included, but payments under written separation agreement are "Does not apply if alimony is based upon a fixed % of income, but payments need to go on for 36 months"
Fixed portion or portions of income or compensation - different %'s on different portions of income are allowed. Portion must be same for all years (35% of income to $80,000 and 0% over)
If payor underpays total support, shortfall is alimony, rather than child support. See IRC, Sec. 71(c)(3).