March 15, 2018 3:15 am

Proceeds from Home Sale Payable to Ex-Spouse not Alimony

A divorce decree required a spouse to continuing paying the expenses on a home in which his ex-spouse lived. And when the home was sold, he was required to pay her half the net proceeds, which he did. He deducted the proceeds as alimony, but the Tax Court denied his deduction and now an appellate court has agreed with the Tax Court (M.G. Hexum, CA-7, 2018-1 USTC ¶50,168).

If the state family court ordered that he make the payment for half the sales proceeds and he did so in cash, why couldn’t it be treated as alimony? One of the requirements for deductible alimony is that the obligation to make payments must end upon the recipient’s death. The divorce decree in this case was silent on the matter. However, state law (Illinois) was unambiguous on the matter; the obligation would not terminate on the ex-spouse’s death. Also, the divorce agreement treated the terms for the home sale proceeds separately from the provisions concerning maintenance for the ex-spouse, payments of which would end on the ex-spouse’s death.

Note: Effective for decrees and agreements finalized after December 31, 2018, payments from one spouse to another that would otherwise be treated as alimony are not deductible by the payer or taxable to the recipient.

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Tax Glossary

Residential rental property

Real property in which 80% or more of the gross income is from dwelling units. Under MACRS, depreciation is claimed over 27.5 years under the straight-line method.

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