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I have a tax question for alimony recapture rule, I am

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I am wondering about the recapture rule and if i should file an ammended return

Submitted: 7 months ago.Category: Tax
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12/2/2017
Tax Professional: emc011075, Tax adviser replied 7 months ago
emc011075
emc011075, Tax adviser
Category: Tax
Satisfied Customers: 3,893
Experience: IRS licensed Enrolled Agent and tax instructor
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Hi. My name is ***** ***** I will be happy to help you.

What do you mean with the recapture? Did you pay/receive a lump sum for multiple years? Are you asking about receiving alimony or paying alimony?

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Customer reply replied 7 months ago
In the year of the divorce (2014) I received 87500. in alimony. In 2015 I received 149980. In 2016 I received 87500 in alimony. In addition, I receive 40085 under a temporary order in 2016. My understanding is the amount from a temporary order is not included in the calculation. Is that true?
Tax Professional: emc011075, Tax adviser replied 7 months ago

Anything received between the date of separation and the final divorce decree is considered taxable alimony. If the temporary order was a court order than it is taxable.

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Customer reply replied 7 months ago
I think you need to read the question, I am not asking about alimony for tax purposes. I am asking about the calculation to be included in the recapture rule. Which the code specifically states that any money received from a temporary order is not included in the calculation for tax recapture rules. I have copy and pasted from the IRS website. When to apply the recapture rule. You are subject to
the recapture rule in the third year if the alimony you pay in
the third year decreases by more than $15,000 from the
second year or the alimony you pay in the second and
third years decreases significantly from the alimony you
pay in the first year.
When you figure a decrease in alimony, don’t include
the following amounts.
Payments made under a temporary support order.
Payments required over a period of at least 3 calendar
years that vary because they are a fixed part of your
income from a business or property, or from compensation
for employment or self-employment.
Payments that decrease because of the death of either
spouse or the remarriage of the spouse receiving
the payments before the end of the third year.
Tax Professional: emc011075, Tax adviser replied 7 months ago

I see. You picked up a wrong category, you are in tax category. You need family lawyer. Let me switch you to correct category.

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Customer reply replied 7 months ago
Please don't switch me, this is for taxes. Maybe give me to someone who does know the Tax Rules
Tax Professional: Robin D., Senior Tax Advisor 4 replied 7 months ago
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 18,221
Experience: 15years with H & R Block. Divisional leader, Instructor
Verified

You are correct. A temporary order amount is not used when calculating the recapture amount. You also do not count payments that are intended to vary according to your income if such variable payments extend over at least three years.

It is the payor who will be required to “recapture” in the third post-separation year any “excess alimony” over the first and second years, which means paying and reporting the recapture amount as taxable income. The spouse receiving alimony is entitled to a deduction for the recapture amount and the taxable income from the first two years is negated by the third year write-off.

For 2016 $47,480 is the 'recaptured' amount that the payor will have to report as taxable income. The receiver gets to reduce their alimony amount that they showed as income. The payor has to amend and the receiver would amend but only if the recapture is for the payor making higher payment in that 2nd year that is not because they earned more income.

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Customer reply replied 7 months ago
Hello, Refreshing! You know the rules....Okay, first this is the exact writing of the separation agreement.Commencing on June 1st, 2014, and continuing on the first day of every month thereafter, Husband shall pay to Wife the sum of 12,487. as General Term Alimony, totaling 149850 per year. This amount represents 37% of the Husband's current gross annual income, which is 405,000 per year based on the representations made in Husband's Rule 401 Financial Statements filed with the court.
Tax Professional: Robin D., Senior Tax Advisor 4 replied 7 months ago

Why did he pay less in 2014 and 2016? If this was lower in 2014 because the divorce was mid year then there is no recapture. The monthly amount would account for a lesser total for the year. This rule was meant to keep the payor form making a large payment in one year to offset his income (because he or she can deduct the alimony). SO the reason is important.

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Customer reply replied 7 months ago
the divorce in 2014 was finalized in May and payments started June 1st. The beginning of the year, we were on temporary. The 2015 was what was required. The 2016 was because he modified taking me back to court and he got a temporary alimony order for the next 15 months.
Tax Professional: Robin D., Senior Tax Advisor 4 replied 7 months ago

2014 the temp amounts do not count but as it was only 7 months it is going to be lower than the yearly amount stated.

If you went back to court and it was reduced then it is not under recapture rules.

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Tax Professional: Robin D., Senior Tax Advisor 4 replied 7 months ago

So far the recapture rules do not apply. He is not required to recapture any amount.

Please let me know if you need more information.
If not then scroll up to see the STARS to rate so I am credited.

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Customer reply replied 7 months ago
okay, do you have a reference for what you are saying? I just want to read it myself because everything I have found does not state what you are saying.
Tax Professional: Robin D., Senior Tax Advisor 4 replied 7 months ago

Sure, one moment

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Customer reply replied 7 months ago
it was reduced under a temporary order only.
Customer reply replied 7 months ago
The reasons for a reduction or end of alimony payments
that can require a recapture include:
A change in your divorce or separation instrument,
A failure to make timely payments,
A reduction in your ability to provide support, or
A reduction in your spouse's support needs.This is a specific from the IRS website
Tax Professional: Robin D., Senior Tax Advisor 4 replied 7 months ago

You do not look to temp orders for this rule. But as it was reduced he was paying the amount required by court not from some scheme on his part to pay you alot one year (for his own benefit to deduct).

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Tax Professional: Robin D., Senior Tax Advisor 4 replied 7 months ago

Under Internal Revenue Code (IRC) § 71, recapture requirements apply if excess alimony payments are front-loaded into the first three post-separation years. Their purpose is to discourage divorcing spouses from improperly characterizing property settlement payments as alimony. In this context, "recapture" means to give back or to adjust for a tax benefit that was improperly taken at an earlier point in time.

https://www.law.cornell.edu/uscode/text/26/71

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Customer reply replied 7 months ago
I understand what you are saying completely.
Recapture of Alimony
If your alimony payments decrease or end during the first
3 calendar years, you may be subject to the recapture
rule. If you are subject to this rule, you have to include in
income in the third year part of the alimony payments you
previously deducted. Your spouse can deduct in the third
year part of the alimony payments he or she previously included
in income.
The 3-year period starts with the first calendar year you
make a payment qualifying as alimony under a decree of
divorce or separate maintenance or a written separation
agreement. Don’t include any time in which payments
were being made under temporary support orders. The
second and third years are the next 2 calendar years,
whether or not payments are made during those years.
The reasons for a reduction or end of alimony payments
that can require a recapture include:
A change in your divorce or separation instrument,
A failure to make timely payments,
A reduction in your ability to provide support, or
A reduction in your spouse's support needs.
When to apply the recapture rule. You are subject to
the recapture rule in the third year if the alimony you pay in
the third year decreases by more than $15,000 from the
second year or the alimony you pay in the second and
third years decreases significantly from the alimony you
pay in the first year.
When you figure a decrease in alimony, don’t include
the following amounts.
Payments made under a temporary support order.
Payments required over a period of at least 3 calendar
years that vary because they are a fixed part of your
income from a business or property, or from compensation
for employment or self-employment.
Payments that decrease because of the death of either
spouse or the remarriage of the spouse receiving
the payments before the end of the third year.
How to figure and report the recapture. Both you and
your spouse can use Worksheet 1 to figure recaptured alimony.
Including the recapture in income. If you must include
a recapture amount in income, show it on Form
1040, line 11 (“Alimony received”). Cross out “received”
and enter “recapture.” On the dotted line next to the
amount, enter your spouse's last name and social security
number (SSN) or IRS individual taxpayer identification
number (ITIN).
This does not sound like what you are saying. I am copying and pasting straight from the irs website
Customer reply replied 7 months ago
https://www.irs.gov/pub/irs-pdf/p504.pdf
Tax Professional: Robin D., Senior Tax Advisor 4 replied 7 months ago

That is all correct. First you have to determine if you are subject to the rule. In the very beginning it states you may be.

All the rest explains what to do if you are.

You stated the 3rd year reduction was due to a temporary order.

The recapture rule does not apply for payments made pursuant to a temporary order.

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Customer reply replied 7 months ago
Right, I know that. So to calculate it it would be 2014 87500, 2015 149980, and 2016 87500. The temporary amount does not count.
Under this rule, doesn't it now say the recapture rule applies?
Customer reply replied 7 months ago
When to apply the recapture rule. You are subject to
the recapture rule in the third year if the alimony you pay in
the third year decreases by more than $15,000 from the
second year or the alimony you pay in the second and
third years decreases significantly from the alimony you
pay in the first year.
Customer reply replied 7 months ago
This seems confusing but the amounts I listed are just the amounts paid under the divorce instrument, and not temporary
Tax Professional: Robin D., Senior Tax Advisor 4 replied 7 months ago

The fact that it was reduced by a temp order means it is not subject to recapture. Why in 2016 did he pay less, because he was told to by the temp order.

I can fully understand why you are looking to this rule. You would be able to reduce your own income by the $47,480.

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Customer reply replied 7 months ago
Where does it say that what you are saying. He actually frauded the court to get the reduction. But that is besides the point. Right now I am looking at the rules, and it does state don't inlcude any amount from a temporary order but it does not state that because it was reduced by temporary order that excludes you from this rule. Actually, it says just the opposite. It says this.
The reasons for a reduction or end of alimony payments
that can require a recapture include:
A change in your divorce or separation instrument,
A failure to make timely payments,
A reduction in your ability to provide support, or
A reduction in your spouse's support needs.
Customer reply replied 7 months ago
The money that was paid under the "temporary order" are not subject to recapture, I understand that. I have included only money that was paid from a divorce agreement in those calcuations
Tax Professional: Robin D., Senior Tax Advisor 4 replied 7 months ago

Then amend your return and reduce by the $47480 that he paid and will be required to include back into his income.

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Customer reply replied 7 months ago
Are you agreeing now with me? I wanted to check with a tax professional about it before I do amend. But the rules do seem pretty clear, and yes it does look like a loophole but never the less, am I entitled to amend?
Tax Professional: Robin D., Senior Tax Advisor 4 replied 7 months ago

I am saying if you are interpreting that the rule applies in your case then amend.

Recapture is required if alimony payments decrease or cease altogether in the first three years after the divorce, and if either of the following statements are also true:

  • Total alimony payments made in the third year are more than $15,000 less than the second year, or
  • The average alimony paid in the second and third year “decreases significantly” from the alimony paid in the first year.

You are drawing your conclusion from the first point above.

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