Alimony buyout payment and tax deduction
I'm planning to pay a lump sum for alimony in 2018. I reside in the state of California. The divorce is not final yet until the settlement agreement is final. The divorce was initiated in Jan 2016 , almost a year from today. Since February of 2016, I have been paying temporary spousal support. Upon agreement, the temporary spousal support will be terminated and the ex-spouse will receive the lump sum.
I keep hearing about new rules changing in 2018, I'm not sure if is applicable. My question is regarding the lump sum offer in particular.
The IRS publication is not clear regarding one lump sum of payment or at least I'm not able to research it.
1- If I do meet the IRS requirements for alimony payment, does my lump sum become tax deductible?
2- The second question, would it be more Tax beneficial if I continue with the monthly payment instead?
3- The third and final question, would the new rules (New Tax Reforms for State and Federal) applicable to my situation? If yes, what are the implications?
Asked 6 months ago in Income Tax from United States
My apologies, I am not expert in US tax laws.
Sorry, we deal with Indian taxation system. Hope other members on the forum can help you out.
We were dealing with US taxation earlier in respect of Indian Immigrants but now we are no longer into that area of practice for the time being.
I quickly browsed through the latest articles on this issue. This article seems to be good given at the following link: https://www.marketwatch.com/story/how-to-make-your-alimony-payments-tax-deductible-2017-08-15
There is one latest but very brief news item at the following link: https://www.wsj.com/livecoverage/tax-bill-2017/card/1513379555
I'm not sure whether the rules have changed. I may need to study the latest amendments to the ACT and its applicability for the tax year 2017 and 2018.
My loud thinking is that it does not really matter whether your alimony payment is lumpsum or monthly, as long as other conditions are met, like your spouse also declares the same as her /his income, cessation of liability after the death of the spouse and there is no child support in the alimony.
However if you are an Indian immigrant and you still have any issue after discussing the issue with your CPAs, you may approach again for detailed analysis and guidance.
In my opinion, the entire stuff is a capital payment and in no way is tax deductible either it be lump sum or monthly payments.
Trust this clarifies your query.
Feel free to call / get back in case of further clarifications.
Rohit R Sharma
BCOM, FCA, LLB, CERT. FAFP
I'm sorry, but this is the wrong forum to ask your question. This website gives advice on Indian tax laws and not of USA.
M.Com., CA, LL.B
CA, Greater Mumbai