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Requirements to make alimony tax-deductible

When an Arizona couple divorces and one party pays support to the other, the payer can usually claim the support as a tax deduction. However, this is only possible if several conditions are in place. The U.S. Tax Court ruled on one of these conditions in 2017.

A man who divorced in 2007 had claimed a deduction for alimony on his tax return. Included in that deduction were several months' worth of temporary support payments and a portion of a bonus he had received the year before the divorce. He and his wife had signed an agreement before the divorce was final regarding the division of the bonus, but it was not included in the subsequent spousal support order. That order only mentioned the monthly payments he was supposed to make plus a percentage he was supposed to pay once his income went above a certain monthly level.

The court said that in order to qualify as a deduction, a payment had to be part of a formal separation or divorce agreement. Other requirements are that this agreement must not specify that the alimony is not tax deductible or subject to tax, the arrangement must be one that would end if the recipient were deceased, and the two parties in the agreement must live in separate households.

Not every divorce will involve spousal support since this is usually for situations in which one spouse did not work outside the home or a large income disparity exists. However, in many divorces, property division is necessary. Along with spousal support and other divorce-related issues, this can be negotiated by a couple instead of going to court. Attorneys can assist with the negotiations, and once an agreement is made, a judge can make it legally binding.

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