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recapture rule

Posted on: 13th Nov, 2006 10:44 am
please provide some information on when I would be subject to the recapture rule and when it is applied for the alimony payments in divorce
Hi J. Blige,

You will be subject to the recapture rule in the 3rd year if the alimony you pay in the third year decreases by more than $15,000 from the 2nd year or the alimony you pay in the 2nd and 3rd years decreases significantly from the alimony you had paid in the 1st year.

When you calculate the decrease in alimony payments, you should not include the following amounts:
  1. Payments which are made under a temporary support order.
  2. Payments required over a span of at least three years of a fixed part of your income from a business or property, or from compensation for employment or self-employment.
  3. Payments that decrease because of the death of either spouse or the remarriage of the spouse receiving the payments.
Let us know if you have any other queries.

Posted on: 13th Nov, 2006 10:57 am
Hi JBlige,

It may happen that a large sum of alimony (over $15,000) is paid in the first or second year following the divorce, but comparatively less amount is paid in the third year. Under the Federal Law, a part of the alimony deducted by the payer in the first two years is recaptured by adding it back to the payer's taxable income in the third year. This is the Recapture Rule in relation to alimony.

The Recapture Rule allows the spouse receiving the alimony to get a corresponding deduction in the third year. The Rule is not applicable for alimony paid under temporary support orders, that is, before the final decree is issued. It may also not apply when the reason for drop-off in alimony in the third year is the death or remarriage of the recipient.

Posted on: 13th Nov, 2006 11:18 pm
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