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Taxact sign 5. Taxact sign   Soil and Water Conservation Expenses Table of Contents Introduction Topics - This chapter discusses: Business of Farming Plan Certification Conservation ExpensesWater well. Taxact sign Assessment by Conservation DistrictAssessment for Depreciable Property 25% Limit on DeductionNet operating loss. Taxact sign When to Deduct or Capitalize Sale of a Farm Introduction If you are in the business of farming, you can choose to deduct certain expenses for: Soil or water conservation, Prevention of erosion of land used in farming, or Endangered species recovery. Taxact sign Otherwise, these are capital expenses that must be added to the basis of the land. Taxact sign (See chapter 6 for information on determining basis. Taxact sign ) Conservation expenses for land in a foreign country do not qualify for this special treatment. Taxact sign The deduction for conservation expenses cannot be more than 25% of your gross income from farming. Taxact sign See 25% Limit on Deduction , later. Taxact sign Although some expenses are not deductible as soil and water conservation expenses, they may be deductible as ordinary and necessary farm expenses. Taxact sign These include interest and taxes, the cost of periodically clearing brush from productive land, the regular removal of sediment from a drainage ditch, and expenses paid or incurred primarily to produce an agricultural crop that may also conserve soil. Taxact sign You must include in income most government payments for approved conservation practices. Taxact sign However, you can exclude some payments you receive under certain cost-sharing conservation programs. Taxact sign For more information, see Agricultural Program Payments in chapter 3. Taxact sign To get the full deduction to which you are entitled, you should maintain your records to clearly distinguish between your ordinary and necessary farm business expenses and your soil and water conservation expenses. Taxact sign Topics - This chapter discusses: Business of farming Plan certification Conservation expenses Assessment by conservation district 25% limit on deduction When to deduct or capitalize Sale of a farm Business of Farming For purposes of soil and water conservation expenses, you are in the business of farming if you cultivate, operate, or manage a farm for profit, either as an owner or a tenant. Taxact sign You are not in the business of farming if you cultivate or operate a farm for recreation or pleasure, rather than for profit. Taxact sign You are not farming if you are engaged only in forestry or the growing of timber. Taxact sign Farm defined. Taxact sign   A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. Taxact sign It also includes plantations, ranches, ranges, and orchards. Taxact sign A fish farm is an area where fish and other marine animals are grown or raised and artificially fed, protected, etc. Taxact sign It does not include an area where they are merely caught or harvested. Taxact sign A plant nursery is a farm for purposes of deducting soil and water conservation expenses. Taxact sign Farm rental. Taxact sign   If you own a farm and receive farm rental payments based on farm production, either in cash or crop shares, you are in the business of farming. Taxact sign If you get cash rental for a farm you own that is not used in farm production, you cannot deduct soil and water conservation expenses for that farm. Taxact sign   If you receive a fixed rental payment that is not based on farm production, you are in the business of farming only if you materially participate in operating or managing the farm. Taxact sign Example. Taxact sign You own a farm in Iowa and live in California. Taxact sign You rent the farm for $175 in cash per acre and do not materially participate in producing or managing production of the crops grown on the farm. Taxact sign You cannot deduct your soil conservation expenses for this farm. Taxact sign You must capitalize the expenses and add them to the basis of the land. Taxact sign     For more information, see Material participation for landlords under Landlord Participation in Farming in chapter 12. Taxact sign Plan Certification You can deduct soil and water conservation expenses only if they are consistent with a plan approved by the Natural Resources Conservation Service (NRCS) of the Department of Agriculture. Taxact sign If no such plan exists, the expenses must be consistent with a soil conservation plan of a comparable state agency. Taxact sign Keep a copy of the plan with your books and records to support your deductions. Taxact sign Conservation plan. Taxact sign   A conservation plan includes the farming conservation practices approved for the area where your farmland is located. Taxact sign There are three types of approved plans. Taxact sign NRCS individual site plans. Taxact sign These plans are issued individually to farmers who request assistance from NRCS to develop a conservation plan designed specifically for their farmland. Taxact sign NRCS county plans. Taxact sign These plans include a listing of farm conservation practices approved for the county where the farmland is located. Taxact sign You can deduct expenses for conservation practices not included on the NRCS county plans only if the practice is a part of an individual site plan. Taxact sign Comparable state agency plans. Taxact sign These plans are approved by state agencies and can be approved individual site plans or county plans. Taxact sign   A list of NRCS conservation programs is available at www. Taxact sign nrcs. Taxact sign usda. Taxact sign gov/programs. Taxact sign Individual site plans can be obtained from NRCS offices and the comparable state agencies. Taxact sign Conservation Expenses You can deduct conservation expenses only for land you or your tenant are using, or have used in the past, for farming. Taxact sign These expenses include, but are not limited to, the following. Taxact sign The treatment or movement of earth, such as: Leveling, Conditioning, Grading, Terracing, Contour furrowing, and Restoration of soil fertility. Taxact sign The construction, control, and protection of: Diversion channels, Drainage ditches, Irrigation ditches, Earthen dams, and Watercourses, outlets, and ponds. Taxact sign The eradication of brush. Taxact sign The planting of windbreaks. Taxact sign You cannot deduct expenses to drain or fill wetlands, or to prepare land for center pivot irrigation systems, as soil and water conservation expenses. Taxact sign These expenses are added to the basis of the land. Taxact sign If you choose to deduct soil and water conservation expenses, you cannot exclude from gross income any cost-sharing payments you receive for those expenses. Taxact sign See chapter 3 for information about payments eligible for the cost-sharing exclusion. Taxact sign New farm or farmland. Taxact sign   If you acquire a new farm or new farmland from someone who was using it in farming immediately before you acquired the land, soil and water conservation expenses you incur on it will be treated as made on land used in farming at the time the expenses were paid or incurred. Taxact sign You can deduct soil and water conservation expenses for this land if your use of it is substantially a continuation of its use in farming. Taxact sign The new farming activity does not have to be the same as the old farming activity. Taxact sign For example, if you buy land that was used for grazing cattle and then prepare it for use as an apple orchard, you can deduct your conservation expenses. Taxact sign Land not used for farming. Taxact sign   If your conservation expenses benefit both land that does not qualify as land used for farming and land that does qualify, you must allocate the expenses between the two types of land. Taxact sign For example, if the expenses benefit 200 acres of your land, but only 120 acres of this land are used for farming, then you can deduct 60% (120 ÷ 200) of the expenses. Taxact sign You can use another method to allocate these expenses if you can clearly show that your method is more reasonable. Taxact sign Depreciable conservation assets. Taxact sign   You generally cannot deduct your expenses for depreciable conservation assets. Taxact sign However, you can deduct certain amounts you pay or incur for an assessment for depreciable property that a soil and water conservation or drainage district levies against your farm. Taxact sign See Assessment for Depreciable Property , later. Taxact sign   You must capitalize expenses to buy, build, install, or improve depreciable structures or facilities. Taxact sign These expenses include those for materials, supplies, wages, fuel, hauling, and moving dirt when making structures such as tanks, reservoirs, pipes, culverts, canals, dams, wells, or pumps composed of masonry, concrete, tile, metal, or wood. Taxact sign You recover your capital investment through annual allowances for depreciation. Taxact sign   You can deduct soil and water conservation expenses for nondepreciable earthen items. Taxact sign Nondepreciable earthen items include certain dams, ponds, and terraces described under Property Having a Determinable Useful Life in chapter 7. Taxact sign Water well. Taxact sign   You cannot deduct the cost of drilling a water well for irrigation and other agricultural purposes as a soil and water conservation expense. Taxact sign It is a capital expense. Taxact sign You recover your cost through depreciation. Taxact sign You also must capitalize your cost for drilling a test hole. Taxact sign If the test hole produces no water and you continue drilling, the cost of the test hole is added to the cost of the producing well. Taxact sign You can recover the total cost through depreciation deductions. Taxact sign   If a test hole, dry hole, or dried-up well (resulting from prolonged lack of rain, for instance) is abandoned, you can deduct your unrecovered cost in the year of abandonment. Taxact sign Abandonment means that all economic benefits from the well are terminated. Taxact sign For example, filling or sealing a well excavation or casing so that all economic benefits from the well are terminated constitutes an abandonment. Taxact sign Endangered species recovery expenses. Taxact sign   If you are in the business of farming and meet other specific requirements, you can choose to deduct the conservation expenses discussed earlier as endangered species recovery expenses. Taxact sign Otherwise, these are capital expenses that must be added to the basis of the land. Taxact sign   The expenses must be paid or incurred for the purpose of achieving site-specific management actions recommended in a recovery plan approved under section 4(f) of the Endangered Species Act of 1973. Taxact sign See Internal Revenue Code section 175 for more information. Taxact sign Assessment by Conservation District In some localities, a soil or water conservation or drainage district incurs expenses for soil or water conservation and levies an assessment against the farmers who benefit from the expenses. Taxact sign You can deduct as a conservation expense amounts you pay or incur for the part of an assessment that: Covers expenses you could deduct if you had paid them directly, or Covers expenses for depreciable property used in the district's business. Taxact sign Assessment for Depreciable Property You generally can deduct as a conservation expense amounts you pay or incur for the part of a conservation or drainage district assessment that covers expenses for depreciable property. Taxact sign This includes items such as pumps, locks, concrete structures (including dams and weir gates), draglines, and similar equipment. Taxact sign The depreciable property must be used in the district's soil and water conservation activities. Taxact sign However, the following limits apply to these assessments. Taxact sign The total assessment limit. Taxact sign The yearly assessment limit. Taxact sign After you apply these limits, the amount you can deduct is added to your other conservation expenses for the year. Taxact sign The total for these expenses is then subject to the 25% of gross income from farming limit on the deduction, discussed later. Taxact sign See Table 5-1 for a brief summary of these limits. Taxact sign Table 5-1. Taxact sign Limits on Deducting an Assessment by a Conservation District for Depreciable Property Total Limit on Deduction for Assessment for Depreciable Property Yearly Limit on Deduction for Assessment for Depreciable Property Yearly Limit for All Conservation Expenses 10% of: $500 + 10% of: 25% of: Total assessment against all members of the district for the property. Taxact sign Your deductible share of the cost to the district for the property. Taxact sign Your gross income from farming. Taxact sign No one taxpayer can deduct more than 10% of the total assessment. Taxact sign Any amount over 10% is a capital expense and is added to the basis of your land. Taxact sign If an assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. Taxact sign If the amount you pay or incur for any year is more than the limit, you can deduct for that year only 10% of your deductible share of the cost. Taxact sign You can deduct the remainder in equal amounts over the next 9 tax years. Taxact sign Limit for all conservation expenses, including assessments for depreciable property. Taxact sign Amounts greater than 25% can be carried to the following year and added to that year's expenses. Taxact sign The total is then subject to the 25% of gross income from farming limit in that year. Taxact sign To ensure your deduction is within the deduction limits, keep records to show the following. Taxact sign The total assessment against all members of the district for the depreciable property. Taxact sign Your deductible share of the cost to the district for the depreciable property. Taxact sign Your gross income from farming. Taxact sign Total assessment limit. Taxact sign   You cannot deduct more than 10% of the total amount assessed to all members of the conservation or drainage district for the depreciable property. Taxact sign This applies whether you pay the assessment in one payment or in installments. Taxact sign If your assessment is more than 10% of the total amount assessed, both the following rules apply. Taxact sign The amount over 10% is a capital expense and is added to the basis of your land. Taxact sign If the assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. Taxact sign Yearly assessment limit. Taxact sign   The maximum amount you can deduct in any one year is the total of 10% of your deductible share of the cost as explained earlier, plus $500. Taxact sign If the amount you pay or incur is equal to or less than the maximum amount, you can deduct it in the year it is paid or incurred. Taxact sign If the amount you pay or incur is more, you can deduct in that year only 10% of your deductible share of the cost. Taxact sign You can deduct the remainder in equal amounts over the next 9 tax years. Taxact sign Your total conservation expense deduction for each year is also subject to the 25% of gross income from farming limit on the deduction, discussed later. Taxact sign Example 1. Taxact sign This year, the soil conservation district levies and you pay an assessment of $2,400 against your farm. Taxact sign Of the assessment, $1,500 is for digging drainage ditches. Taxact sign You can deduct this part as a soil or conservation expense as if you had paid it directly. Taxact sign The remaining $900 is for depreciable equipment to be used in the district's irrigation activities. Taxact sign The total amount assessed by the district against all its members for the depreciable equipment is $7,000. Taxact sign The total amount you can deduct for the depreciable equipment is limited to 10% of the total amount assessed by the district against all its members for depreciable equipment, or $700. Taxact sign The $200 excess ($900 − $700) is a capital expense you must add to the basis of your farm. Taxact sign To figure the maximum amount you can deduct for the depreciable equipment this year, multiply your deductible share of the total assessment ($700) by 10%. Taxact sign Add $500 to the result for a total of $570. Taxact sign Your deductible share, $700, is greater than the maximum amount deductible in one year, so you can deduct only $70 of the amount you paid or incurred for depreciable property this year (10% of $700). Taxact sign You can deduct the balance at the rate of $70 a year over the next 9 years. Taxact sign You add $70 to the $1,500 portion of the assessment for drainage ditches. Taxact sign You can deduct $1,570 of the $2,400 assessment as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed later. Taxact sign Example 2. Taxact sign Assume the same facts in Example 1 except that $1,850 of the $2,400 assessment is for digging drainage ditches and $550 is for depreciable equipment. Taxact sign The total amount assessed by the district against all its members for depreciable equipment is $5,500. Taxact sign The total amount you can deduct for the depreciable equipment is limited to 10% of this amount, or $550. Taxact sign The maximum amount you can deduct this year for the depreciable equipment is $555 (10% of your deductible share of the total assessment, $55, plus $500). Taxact sign Since your deductible share is less than the maximum amount deductible in one year, you can deduct the entire $550 this year. Taxact sign You can deduct the entire assessment, $2,400, as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed below. Taxact sign Sale or other disposal of land during 9-year period. Taxact sign   If you dispose of the land during the 9-year period for deducting conservation expenses subject to the yearly limit, any amounts you have not yet deducted because of this limit are added to the basis of the property. Taxact sign Death of farmer during 9-year period. Taxact sign   If a farmer dies during the 9-year period, any remaining amounts not yet deducted are deducted in the year of death. Taxact sign 25% Limit on Deduction The total deduction for conservation expenses in any tax year is limited to 25% of your gross income from farming for the year. Taxact sign Gross income from farming. Taxact sign   Gross income from farming is the income you derive in the business of farming from the production of crops, fish, fruits, other agricultural products, or livestock. Taxact sign Gains from sales of draft, breeding, or dairy livestock are included. Taxact sign Gains from sales of assets such as farm machinery, or from the disposition of land, are not included. Taxact sign Carryover of deduction. Taxact sign   If your deductible conservation expenses in any year are more than 25% of your gross income from farming for that year, you can carry the unused deduction over to later years. Taxact sign However, the deduction in any later year is limited to 25% of the gross income from farming for that year as well. Taxact sign Example. Taxact sign In 2012, you have gross income of $32,000 from two farms. Taxact sign During the year, you incurred $10,000 of deductible soil and water conservation expenses for one of the farms. Taxact sign However, your deduction is limited to 25% of $32,000, or $8,000. Taxact sign The $2,000 excess ($10,000 − $8,000) is carried over to 2013 and added to deductible soil and water conservation expenses made in that year. Taxact sign The total of the 2012 carryover plus 2013 expenses is deductible in 2013, subject to the limit of 25% of your gross income from farming in 2013. Taxact sign Any expenses over the limit in that year are carried to 2014 and later years. Taxact sign Net operating loss. Taxact sign   The deduction for soil and water conservation expenses, after applying the 25% limit, is included when figuring a net operating loss (NOL) for the year. Taxact sign If the NOL is carried to another year, the soil and water conservation deduction included in the NOL is not subject to the 25% limit in the year to which it is carried. Taxact sign When to Deduct or Capitalize If you choose to deduct soil and water conservation expenses, you must deduct the total allowable amount on your tax return for the first year you pay or incur these expenses. Taxact sign If you do not choose to deduct the expenses, you must capitalize them. Taxact sign Change of method. Taxact sign   If you want to change your method for the treatment of soil and water conservation expenses, or you want to treat the expenses for a particular project or a single farm in a different manner, you must get the approval of the IRS. Taxact sign To get this approval, submit a written request by the due date of your return for the first tax year you want the new method to apply. Taxact sign You or your authorized representative must sign the request. Taxact sign   The request must include the following information. Taxact sign Your name and address. Taxact sign The first tax year the method or change of method is to apply. Taxact sign Whether the method or change of method applies to all your soil and water conservation expenses or only to those for a particular project or farm. Taxact sign If the method or change of method does not apply to all your expenses, identify the project or farm to which the expenses apply. Taxact sign The total expenses you paid or incurred in the first tax year the method or change of method is to apply. Taxact sign A statement that you will account separately in your books for the expenses to which this method or change of method relates. Taxact sign Send your request to the following  address. Taxact sign  Department of the Treasury Internal Revenue Service Center Cincinnati, OH 45999  For more information, see Change in  Accounting Method in chapter 2. Taxact sign Sale of a Farm If you sell your farm, you cannot adjust the basis of the land at the time of the sale for any unused carryover of soil and water conservation expenses (except for deductions of assessments for depreciable property, discussed earlier). Taxact sign However, if you acquire another farm and return to the business of farming, you can start taking deductions again for the unused carryovers. Taxact sign Gain on sale of farmland. Taxact sign   If you held the land 5 years or less before you sold it, gain on the sale of the land is treated as ordinary income up to the amount you previously deducted for soil and water conservation expenses. Taxact sign If you held the land less than 10 but more than 5 years, the gain is treated as ordinary income up to a specified percentage of the previous deductions. Taxact sign See Section 1252 property under Other Gains in chapter 9. Taxact sign Prev  Up  Next   Home   More Online Publications
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Taxact sign 18. Taxact sign   Alimony Table of Contents IntroductionSpouse or former spouse. Taxact sign Divorce or separation instrument. Taxact sign Useful Items - You may want to see: General RulesMortgage payments. Taxact sign Taxes and insurance. Taxact sign Other payments to a third party. Taxact sign Instruments Executed After 1984Payments to a third party. Taxact sign Exception. Taxact sign Substitute payments. Taxact sign Specifically designated as child support. Taxact sign Contingency relating to your child. Taxact sign Clearly associated with a contingency. Taxact sign How To Deduct Alimony Paid How To Report Alimony Received Recapture Rule Introduction This chapter discusses the rules that apply if you pay or receive alimony. Taxact sign It covers the following topics. Taxact sign What payments are alimony. Taxact sign What payments are not alimony, such as child support. Taxact sign How to deduct alimony you paid. Taxact sign How to report alimony you received as income. Taxact sign Whether you must recapture the tax benefits of alimony. Taxact sign Recapture means adding back in your income all or part of a deduction you took in a prior year. Taxact sign Alimony is a payment to or for a spouse or former spouse under a divorce or separation instrument. Taxact sign It does not include voluntary payments that are not made under a divorce or separation instrument. Taxact sign Alimony is deductible by the payer and must be included in the spouse's or former spouse's income. Taxact sign Although this chapter is generally written for the payer of the alimony, the recipient can use the information to determine whether an amount received is alimony. Taxact sign To be alimony, a payment must meet certain requirements. Taxact sign Different requirements generally apply to payments under instruments executed after 1984 and to payments under instruments executed before 1985. Taxact sign This chapter discusses the rules for payments under instruments executed after 1984. Taxact sign If you need the rules for payments under pre-1985 instruments, get and keep a copy of the 2004 version of Publication 504. Taxact sign That was the last year the information on pre-1985 instruments was included in Publication 504. Taxact sign Use Table 18-1 in this chapter as a guide to determine whether certain payments are considered alimony. Taxact sign Definitions. Taxact sign   The following definitions apply throughout this chapter. Taxact sign Spouse or former spouse. Taxact sign   Unless otherwise stated, the term “spouse” includes former spouse. Taxact sign Divorce or separation instrument. Taxact sign   The term “divorce or separation instrument” means: A decree of divorce or separate maintenance or a written instrument incident to that decree, A written separation agreement, or A decree or any type of court order requiring a spouse to make payments for the support or maintenance of the other spouse. Taxact sign This includes a temporary decree, an interlocutory (not final) decree, and a decree of alimony pendente lite (while awaiting action on the final decree or agreement). Taxact sign Useful Items - You may want to see: Publication 504 Divorced or Separated Individuals General Rules The following rules apply to alimony regardless of when the divorce or separation instrument was executed. Taxact sign Payments not alimony. Taxact sign   Not all payments under a divorce or separation instrument are alimony. Taxact sign Alimony does not include: Child support, Noncash property settlements, Payments that are your spouse's part of community income, as explained under Community Property in Publication 504, Payments to keep up the payer's property, or Use of the payer's property. Taxact sign Payments to a third party. Taxact sign   Cash payments, checks, or money orders to a third party on behalf of your spouse under the terms of your divorce or separation instrument can be alimony, if they otherwise qualify. Taxact sign These include payments for your spouse's medical expenses, housing costs (rent, utilities, etc. Taxact sign ), taxes, tuition, etc. Taxact sign The payments are treated as received by your spouse and then paid to the third party. Taxact sign Life insurance premiums. Taxact sign   Alimony includes premiums you must pay under your divorce or separation instrument for insurance on your life to the extent your spouse owns the policy. Taxact sign Payments for jointly-owned home. Taxact sign   If your divorce or separation instrument states that you must pay expenses for a home owned by you and your spouse, some of your payments may be alimony. Taxact sign Mortgage payments. Taxact sign   If you must pay all the mortgage payments (principal and interest) on a jointly-owned home, and they otherwise qualify as alimony, you can deduct one-half of the total payments as alimony. Taxact sign If you itemize deductions and the home is a qualified home, you can claim one-half of the interest in figuring your deductible interest. Taxact sign Your spouse must report one-half of the payments as alimony received. Taxact sign If your spouse itemizes deductions and the home is a qualified home, he or she can claim one-half of the interest on the mortgage in figuring deductible interest. Taxact sign Taxes and insurance. Taxact sign   If you must pay all the real estate taxes or insurance on a home held as tenants in common, you can deduct one-half of these payments as alimony. Taxact sign Your spouse must report one-half of these payments as alimony received. Taxact sign If you and your spouse itemize deductions, you can each claim one-half of the real estate taxes and none of the home insurance. Taxact sign    If your home is held as tenants by the entirety or joint tenants, none of your payments for taxes or insurance are alimony. Taxact sign But if you itemize deductions, you can claim all of the real estate taxes and none of the home insurance. Taxact sign Other payments to a third party. Taxact sign   If you made other third-party payments, see Publication 504 to see whether any part of the payments qualifies as alimony. Taxact sign Instruments Executed After 1984 The following rules for alimony apply to payments under divorce or separation instruments executed after 1984. Taxact sign Exception for instruments executed before 1985. Taxact sign   There are two situations where the rules for instruments executed after 1984 apply to instruments executed before 1985. Taxact sign A divorce or separation instrument executed before 1985 and then modified after 1984 to specify that the after-1984 rules will apply. Taxact sign A temporary divorce or separation instrument executed before 1985 and incorporated into, or adopted by, a final decree executed after 1984 that: Changes the amount or period of payment, or Adds or deletes any contingency or condition. Taxact sign   For the rules for alimony payments under pre-1985 instruments not meeting these exceptions, get the 2004 version of Publication 504 at www. Taxact sign irs. Taxact sign gov/pub504. Taxact sign Example 1. Taxact sign In November 1984, you and your former spouse executed a written separation agreement. Taxact sign In February 1985, a decree of divorce was substituted for the written separation agreement. Taxact sign The decree of divorce did not change the terms for the alimony you pay your former spouse. Taxact sign The decree of divorce is treated as executed before 1985. Taxact sign Alimony payments under this decree are not subject to the rules for payments under instruments executed after 1984. Taxact sign Example 2. Taxact sign Assume the same facts as in Example 1 except that the decree of divorce changed the amount of the alimony. Taxact sign In this example, the decree of divorce is not treated as executed before 1985. Taxact sign The alimony payments are subject to the rules for payments under instruments executed after 1984. Taxact sign Alimony requirements. Taxact sign   A payment to or for a spouse under a divorce or separation instrument is alimony if the spouses do not file a joint return with each other and all the following requirements are met. Taxact sign The payment is in cash. Taxact sign The instrument does not designate the payment as not alimony. Taxact sign Spouses legally separated under a decree of divorce or separate maintenance are not members of the same household. Taxact sign There is no liability to make any payment (in cash or property) after the death of the recipient spouse. Taxact sign The payment is not treated as child support. Taxact sign Each of these requirements is discussed below. Taxact sign Cash payment requirement. Taxact sign   Only cash payments, including checks and money orders, qualify as alimony. Taxact sign The following do not qualify as alimony. Taxact sign Transfers of services or property (including a debt instrument of a third party or an annuity contract). Taxact sign Execution of a debt instrument by the payer. Taxact sign The use of the payer's property. Taxact sign Payments to a third party. Taxact sign   Cash payments to a third party under the terms of your divorce or separation instrument can qualify as cash payments to your spouse. Taxact sign See Payments to a third party under General Rules, earlier. Taxact sign   Also, cash payments made to a third party at the written request of your spouse may qualify as alimony if all the following requirements are met. Taxact sign The payments are in lieu of payments of alimony directly to your spouse. Taxact sign The written request states that both spouses intend the payments to be treated as alimony. Taxact sign You receive the written request from your spouse before you file your return for the year you made the payments. Taxact sign Payments designated as not alimony. Taxact sign   You and your spouse can designate that otherwise qualifying payments are not alimony. Taxact sign You do this by including a provision in your divorce or separation instrument that states the payments are not deductible as alimony by you and are excludable from your spouse's income. Taxact sign For this purpose, any instrument (written statement) signed by both of you that makes this designation and that refers to a previous written separation agreement is treated as a written separation agreement (and therefore a divorce or separation instrument). Taxact sign If you are subject to temporary support orders, the designation must be made in the original or a later temporary support order. Taxact sign   Your spouse can exclude the payments from income only if he or she attaches a copy of the instrument designating them as not alimony to his or her return. Taxact sign The copy must be attached each year the designation applies. Taxact sign Spouses cannot be members of the same household. Taxact sign    Payments to your spouse while you are members of the same household are not alimony if you are legally separated under a decree of divorce or separate maintenance. Taxact sign A home you formerly shared is considered one household, even if you physically separate yourselves in the home. Taxact sign   You are not treated as members of the same household if one of you is preparing to leave the household and does leave no later than 1 month after the date of the payment. Taxact sign Exception. Taxact sign   If you are not legally separated under a decree of divorce or separate maintenance, a payment under a written separation agreement, support decree, or other court order may qualify as alimony even if you are members of the same household when the payment is made. Taxact sign Table 18-1. Taxact sign Alimony Requirements (Instruments Executed After 1984) Payments ARE alimony if all of the following are true: Payments are NOT alimony if any of the following are true: Payments are required by a divorce or separation instrument. Taxact sign Payments are not required by a divorce or separation instrument. Taxact sign Payer and recipient spouse do not file a joint return with each other. Taxact sign Payer and recipient spouse file a joint return with each other. Taxact sign Payment is in cash (including checks or money orders). Taxact sign Payment is: Not in cash, A noncash property settlement, Spouse's part of community income, or To keep up the payer's property. Taxact sign Payment is not designated in the instrument as not alimony. Taxact sign Payment is designated in the instrument as not alimony. Taxact sign Spouses legally separated under a decree of divorce or separate maintenance are not members of the same household. Taxact sign Spouses legally separated under a decree of divorce or separate maintenance are members of the same household. Taxact sign Payments are not required after death of the recipient spouse. Taxact sign Payments are required after death of the recipient spouse. Taxact sign Payment is not treated as child support. Taxact sign Payment is treated as child support. Taxact sign These payments are deductible by the payer and includible in income by the recipient. Taxact sign These payments are neither deductible by the payer nor includible in income by the recipient. Taxact sign Liability for payments after death of recipient spouse. Taxact sign   If any part of payments you make must continue to be made for any period after your spouse's death, that part of your payments is not alimony, whether made before or after the death. Taxact sign If all of the payments would continue, then none of the payments made before or after the death are alimony. Taxact sign   The divorce or separation instrument does not have to expressly state that the payments cease upon the death of your spouse if, for example, the liability for continued payments would end under state law. Taxact sign Example. Taxact sign You must pay your former spouse $10,000 in cash each year for 10 years. Taxact sign Your divorce decree states that the payments will end upon your former spouse's death. Taxact sign You must also pay your former spouse or your former spouse's estate $20,000 in cash each year for 10 years. Taxact sign The death of your spouse would not terminate these payments under state law. Taxact sign The $10,000 annual payments may qualify as alimony. Taxact sign The $20,000 annual payments that do not end upon your former spouse's death are not alimony. Taxact sign Substitute payments. Taxact sign   If you must make any payments in cash or property after your spouse's death as a substitute for continuing otherwise qualifying payments before the death, the otherwise qualifying payments are not alimony. Taxact sign To the extent that your payments begin, accelerate, or increase because of the death of your spouse, otherwise qualifying payments you made may be treated as payments that were not alimony. Taxact sign Whether or not such payments will be treated as not alimony depends on all the facts and circumstances. Taxact sign Example 1. Taxact sign Under your divorce decree, you must pay your former spouse $30,000 annually. Taxact sign The payments will stop at the end of 6 years or upon your former spouse's death, if earlier. Taxact sign Your former spouse has custody of your minor children. Taxact sign The decree provides that if any child is still a minor at your spouse's death, you must pay $10,000 annually to a trust until the youngest child reaches the age of majority. Taxact sign The trust income and corpus (principal) are to be used for your children's benefit. Taxact sign These facts indicate that the payments to be made after your former spouse's death are a substitute for $10,000 of the $30,000 annual payments. Taxact sign Of each of the $30,000 annual payments, $10,000 is not alimony. Taxact sign Example 2. Taxact sign Under your divorce decree, you must pay your former spouse $30,000 annually. Taxact sign The payments will stop at the end of 15 years or upon your former spouse's death, if earlier. Taxact sign The decree provides that if your former spouse dies before the end of the 15-year period, you must pay the estate the difference between $450,000 ($30,000 × 15) and the total amount paid up to that time. Taxact sign For example, if your spouse dies at the end of the tenth year, you must pay the estate $150,000 ($450,000 − $300,000). Taxact sign These facts indicate that the lump-sum payment to be made after your former spouse's death is a substitute for the full amount of the $30,000 annual payments. Taxact sign None of the annual payments are alimony. Taxact sign The result would be the same if the payment required at death were to be discounted by an appropriate interest factor to account for the prepayment. Taxact sign Child support. Taxact sign   A payment that is specifically designated as child support or treated as specifically designated as child support under your divorce or separation instrument is not alimony. Taxact sign The amount of child support may vary over time. Taxact sign Child support payments are not deductible by the payer and are not taxable to the recipient. Taxact sign Specifically designated as child support. Taxact sign   A payment will be treated as specifically designated as child support to the extent that the payment is reduced either: On the happening of a contingency relating to your child, or At a time that can be clearly associated with the contingency. Taxact sign A payment may be treated as specifically designated as child support even if other separate payments are specifically designated as child support. Taxact sign Contingency relating to your child. Taxact sign   A contingency relates to your child if it depends on any event relating to that child. Taxact sign It does not matter whether the event is certain or likely to occur. Taxact sign Events relating to your child include the child's: Becoming employed, Dying, Leaving the household, Leaving school, Marrying, or Reaching a specified age or income level. Taxact sign Clearly associated with a contingency. Taxact sign   Payments that would otherwise qualify as alimony are presumed to be reduced at a time clearly associated with the happening of a contingency relating to your child only in the following situations. Taxact sign The payments are to be reduced not more than 6 months before or after the date the child will reach 18, 21, or local age of majority. Taxact sign The payments are to be reduced on two or more occasions that occur not more than 1 year before or after a different one of your children reaches a certain age from 18 to 24. Taxact sign This certain age must be the same for each child, but need not be a whole number of years. Taxact sign In all other situations, reductions in payments are not treated as clearly associated with the happening of a contingency relating to your child. Taxact sign   Either you or the IRS can overcome the presumption in the two situations above. Taxact sign This is done by showing that the time at which the payments are to be reduced was determined independently of any contingencies relating to your children. Taxact sign For example, if you can show that the period of alimony payments is customary in the local jurisdiction, such as a period equal to one-half of the duration of the marriage, you can overcome the presumption and may be able to treat the amount as alimony. Taxact sign How To Deduct Alimony Paid You can deduct alimony you paid, whether or not you itemize deductions on your return. Taxact sign You must file Form 1040. Taxact sign You cannot use Form 1040A or Form 1040EZ. Taxact sign Enter the amount of alimony you paid on Form 1040, line 31a. Taxact sign In the space provided on line 31b, enter your spouse's social security number (SSN) or individual taxpayer identification number (ITIN). Taxact sign If you paid alimony to more than one person, enter the SSN or ITIN of one of the recipients. Taxact sign Show the SSN or ITIN and amount paid to each other recipient on an attached statement. Taxact sign Enter your total payments on line 31a. Taxact sign You must provide your spouse's SSN or ITIN. Taxact sign If you do not, you may have to pay a $50 penalty and your deduction may be disallowed. Taxact sign For more information on SSNs and ITINs, see Social Security Number (SSN) in chapter 1. Taxact sign How To Report Alimony Received Report alimony you received as income on Form 1040, line 11. Taxact sign You cannot use Form 1040A or Form 1040EZ. Taxact sign You must give the person who paid the alimony your SSN or ITIN. Taxact sign If you do not, you may have to pay a $50 penalty. Taxact sign Recapture Rule If your alimony payments decrease or end during the first 3 calendar years, you may be subject to the recapture rule. Taxact sign 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. Taxact sign Your spouse can deduct in the third year part of the alimony payments he or she previously included in income. Taxact sign 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. Taxact sign Do not include any time in which payments were being made under temporary support orders. Taxact sign The second and third years are the next 2 calendar years, whether or not payments are made during those years. Taxact sign 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. Taxact sign When to apply the recapture rule. Taxact sign   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. Taxact sign   When you figure a decrease in alimony, do not include the following amounts. Taxact sign Payments made under a temporary support order. Taxact sign 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. Taxact sign 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. Taxact sign Figuring the recapture. Taxact sign   You can use Worksheet 1 in Publication 504 to figure recaptured alimony. Taxact sign Including the recapture in income. Taxact sign   If you must include a recapture amount in income, show it on Form 1040, line 11 (“Alimony received”). Taxact sign Cross out “received” and enter “recapture. Taxact sign ” On the dotted line next to the amount, enter your spouse's last name and SSN or ITIN. Taxact sign Deducting the recapture. Taxact sign   If you can deduct a recapture amount, show it on Form 1040, line 31a (“Alimony paid”). Taxact sign Cross out “paid” and enter “recapture. Taxact sign ” In the space provided, enter your spouse's SSN or ITIN. Taxact sign Prev  Up  Next   Home   More Online Publications