Tax Tips: Can I Deduct Alimony or Property Settlement Payments?

tax tipsBy Jennifer M. Paine

Michigan Divorce Lawyer

No matter what your settlement agreement/divorce decree calls it, you can deduct payments to your ex under four circumstances.

You can deduct payments that:

1.) are made pursuant to a written agreement or judgment;

2.) when you are not members of the same household, provided that

3.) the payments are not child support, which is determined, in part, by a three-year payment analysis, and

4.) they cease upon your ex’s death.

When you make payments under all of these circumstances, you can probably deduct the payments from your income.

This is one of the benefits of paying alimony, rather than a property settlement payment. Property transfers incident to divorce are not taxable income to the recipient and, therefore, are not tax deductible to the payor.

This means, for example, you could not deduct your monthly payments to pay off your ex’s share of the equity in the home you keep.

However, by making the payments terminate upon your ex’s death, you could claim a deduction that actually drops you into a lower tax bracket. The net result is your ex gets paid and you pay less taxes. The only one out of luck is Uncle Sam.

That being said, the tax code, like most regulations, changes annually. What you project as a savings may not come to fruition if your income or the code changes. So be sure to discuss your options as well as the risks with your CPA and divorce lawyer.

Read more Divorce Tax Tips articles:

What Is My Tax Status?

Can I Claim The Dependency Exemption?

Can I Deduct Child Support?

Can I Deduct Alimony or Property Settlement Payments?

Can I Deduct Divorce Attorney Fees?

Note: This information is general in nature and should not be construed as tax advice. You should work with your attorney or tax professional to determine the tax advantages that will work best for your situation.

 

Jennifer M. Paine is a Michigan Divorce Lawyer with Cordell & Cordell. She is licensed to practice in Michigan, and has been admitted pro hac vice in Illinois, Ohio, and the United States Court of Federal Claims.

Ms. Paine received her BA in English and Mathematics from Albion College and graduated Summa Cum Laude. She received her Juris Doctorate from MSU College of Law and graduated Summa Cum Laude.

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One comment on “Tax Tips: Can I Deduct Alimony or Property Settlement Payments?

    What abt the way alimony is paid? If the party paying, pays cash or money or check is also one of the prerequisite to being able use the deduction.

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