US Internal Revenue Service: p504--2000

8/14/2019 US Internal Revenue Service: p504--2000

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ContentsImportant Changes ............................................ 1

Important Reminders ......................................... 2

Introduction ....................................................... 2

Filing Status ...................................................... 2Joint Return .................................................... 3

Separate Returns ........................................... 4Head of Household ......................................... 4

Exemptions ........................................................ 6Personal Exemptions ....................................... 6Exemptions for Dependents ........................... 6Dependency Tests .......................................... 6Support Test for Children of Divorced or

Separated Parents ................................... 8Multiple Support Agreement ........................... 10Phaseout of Exemptions ................................ 11

Alimony .............................................................. 11General Rules ................................................. 12

Instruments Executed After 1984 ................... 13Instruments Executed Before 1985 ................ 16

Qualified Domestic Relations Order ............... 18

Individual Retirement Arrangements .............. 18

Property Settlements ........................................ 18Transfer Between Spouses ............................ 18Gift Tax on Property Settlements ................... 20Sale of Jointly-Owned Property ...................... 21

Costs of Getting a Divorce .............................. 21

Tax Withholding and Estimated Tax ............... 22

Community Property ........................................ 22Community Income ......................................... 22Alimony (Community Income) ......................... 23

How To Get Tax Help ......................................... 24

Index ................................................................... 26

Important Changes

Photographs of missing children. The Internal Rev-enue Service is a proud partner with the National Cen-

ter for Missing and Exploited Children. Photographs ofmissing children selected by the Center may appear inthis publication on pages that would otherwise be blank.You can help bring these children home by looking atthe photographs and calling 1800THELOST(18008435678) if you recognize a child.

Paid preparer authorization. Beginning with your re-turn for 2000, you can check a box and authorize theIRS to discuss your tax return with the paid preparerwho signed it. If you check the Yes box in the signa-ture area of your return, the IRS can call your paidpreparer to answer any questions that may arise during

Department of the TreasuryInternal Revenue Service

Publication 50 4Cat. No. 15006I

Divorcedor SeparatedIndividuals

For use in preparing

2000 Returns


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the processing of your return. Also, you are authorizingyour paid preparer to perform certain actions. See yourincome tax package for details.

Important Reminders

Relief from joint liability. In some cases, one spousemay be relieved of joint liability for tax, interest, andpenalties on a joint tax return. For more information,see Relief from joint liabilityunder Joint Return.

Social security numbers for dependents. You mustinclude the taxpayer identification number (generallythe social security number) of every person for whomyou claim an exemption. See Exemptions for Depen-dentsunder Exemptions, later.

Individual taxpayer identification number (ITIN).The IRS will issue an ITIN to a nonresident or residentalien who does not have and is not eligible to get asocial security number (SSN). To apply for an ITIN,

Form W7, Application for IRS Individual TaxpayerIdentification Number, must be filed with the IRS. Itusually takes about 30 days to get an ITIN. The ITINis entered wherever an SSN is requested on a tax re-turn. If you are required to include another person'sSSN on your return and that person does not have andcannot get an SSN, enter that person's ITIN.

Change of address. If you change your mailing ad-dress, be sure to notify the Internal Revenue Serviceusing Form 8822, Change of Address. Mail it to theInternal Revenue Service Center for your old address.(Addresses for the Service Centers are on the back of

the form.)

Change of name. If you change your name, be sureto notify the Social Security Administration using FormSS5, Application for a Social Security Card.

IntroductionThis publication explains tax rules that apply if you aredivorced or separated from your spouse. It coversgeneral filing information and can help you choose yourfiling status. It also can help you decide which ex-emptions you are entitled to claim, including exemptions

for dependents.The publication also discusses payments and trans-

fers of property that often occur as a result of divorceand how you must treat them on your tax return. Ex-amples include alimony, child support, other court-ordered payments, property settlements, and transfersof individual retirement arrangements. In addition, thispublication also explains deductions allowed for someof the costs of obtaining a divorce and how to handletax withholding and estimated tax payments.

The last part of the publication explains special rulesthat may apply to persons who live in communityproperty states.

Comments and suggestions. We welcome yourcomments about this publication and your suggestionsfor future editions.

You can e-mail us while visiting our web site atwww.irs.gov/help/email2.html.

You can write to us at the following address:

Internal Revenue ServiceTechnical Publications BranchW:CAR:MP:FP:P

1111 Constitution Ave. NWWashington, DC 20224

We respond to many letters by telephone. Therefore,it would be helpful if you would include your daytimephone number, including the area code, in your corre-spondence.

Useful ItemsYou may want to see:

Publications

501 Exemptions, Standard Deduction, and Filing

Information 544 Sales and Other Dispositions of Assets

555 Community Property

590 Individual Retirement Arrangements (IRAs)(Including Roth IRAs and Education IRAs)

971 Innocent Spouse Relief (And Separation ofLiability and Equitable Relief)

Form (and Instructions)

8332 Release of Claim to Exemption for Child ofDivorced or Separated Parents

8857 Request for Innocent Spouse Relief (AndSeparation of Liability and Equitable Relief)

Filing StatusYour filing status is used in determining whether youmust file a return, your standard deduction, and thecorrect tax. It may also determine whether you canclaim certain deductions and credits. The filing statusyou can choose depends partly on your marital statuson the last day of your tax year.

Marital status. If you are considered unmarried, yourfiling status is single or, if you meet certain require-ments, head of household or qualifying widow(er). If youare considered married, your filing status is eithermarried filing a joint return or married filing a separatereturn. For information about the single and qualifyingwidow(er) filing statuses, see Publication 501.

Considered unmarried. You are considered un-married for the whole year if either of the following ap-plies.

1) You have obtained a final decree of divorce orseparate maintenanceby the last day of your tax

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year. You must follow your state law to determineif you are divorced or legally separated.

Exception. If you and your spouse obtain a di-vorce in one year for the sole purpose of filing taxreturns as unmarried individuals, and at the timeof divorce you intend to remarry each other and doso in the next tax year, you and your spouse mustfile as married individuals.

2) You have obtained a decree of annulment, which

holds that no valid marriage ever existed. You mustfile amended returns (Form 1040X, Amended U.S.Individual Income Tax Return) for all tax years af-fected by the annulment that are not closed by theperiod of limitations. The period of limitations gen-erally does not end until 3 years after the due dateof your original return. On the amended return youwill change your filing status to single, or if you meetcertain requirements, head of household.

Considered married. You are considered marriedfor the whole year if you are separated but you havenot obtained a final decree of divorce or separatemaintenance by the last day of your tax year. An

interlocutory decree is not a final decree.Exception. If you live apart from your spouse, under

certain circumstances you may be considered unmar-ried and can file as head of household. See Head ofHousehold, later.

Joint ReturnIf you are married, you and your spouse can choose tofile a joint return. If you file jointly, you both must includeall your income, exemptions, deductions, and creditson that return. You can file a joint return even if one ofyou had no income or deductions.

TIPIf both you and your spouse have income, youshould usually figure your tax on both a jointreturn and separate returns to see which gives

you the lower tax.

To file a joint return, at least one of you must be aU.S. citizen or resident at the end of the tax year. Ifeither of you was a nonresident alien at any time duringthe tax year, you can file a joint return only if you agreeto treat the nonresident spouse as a resident of theUnited States. This means that your combined world-wide incomes are subject to U.S. income tax. Theserules are explained in Publication 519, U.S. Tax Guide

for Aliens.

Signing a joint return. Both you and your spousemust sign the return, or it will not be considered a jointreturn.

Joint and individual liability. Both you and yourspouse are responsible, jointly and individually, for thetax and any interest or penalty due on your joint return.This means that one spouse may be held liable for allthe tax due even if all the income was earned by theother spouse.

Divorced taxpayers. If you are divorced, you arestill jointly and individually responsible for any tax, in-terest, and penalties due on a joint return for a tax yearending before your divorce. This responsibility applieseven if your divorce decree states that your formerspouse will be responsible for any amounts due onpreviously filed joint returns.

Relief from joint liability. In some cases, a spousewill be relieved of the tax, interest, and penalties on a

joint return. You can ask for relief no matter how small

the liability.There are three types of relief available.

1) Separation of liability, which may apply to joint filerswho are divorced, widowed, legally separated, orhave not lived together for the past 12 months.

2) Innocent spouse relief, which may apply to all jointfilers.

3) Equitable relief, which applies to all joint filers.

Innocent spouse relief and separation of liability ap-ply only to items incorrectly reported on the return. If aspouse does not qualify for innocent spouse relief or

separation of liability, the IRS may grant equitable relief.Each of these kinds of relief is different, and they

each have different requirements. You must file Form8857 to request any of these kinds of relief. Publication971 explains these kinds of relief and who may qualifyfor them.

The relief from liability rules discussed here apply totax liabilities arising after July 22, 1998, and tax liabil-ities arising on or before July 22, 1998, that were unpaidas of that date.

Tax refund applied to spouse's debts. The over-payment shown on your joint return may be used to paythe past-due amount of your spouse's debts. You can

get your share of the refund if you qualify as an injuredspouse.

Injured spouse. You are an injured spouse if youfile a joint return and all or part of your share of theoverpayment was, or is expected to be, applied againstyour spouse's past-due federal tax, state income tax,child or spousal support, or federal nontax debt, suchas a student loan. You should file Form 8379, InjuredSpouse Claim and Allocation, if you meet all three ofthe following conditions.

1) You are not required to pay the past-due amount.

2) You reported income such as wages, taxable in-

terest, etc., on the joint return.3) You made and reported payments such as federal

income tax withheld from your wages or estimatedtax payments or you claimed refundable credits(such as the earned income credit) on the joint re-turn.

If all three of the above apply and you want yourshare of the overpayment shown on the joint return re-funded to you, complete Form 8379. If your main homewas in a community property state, you can file Form8379 if only item 1 applies. Follow the instructions onthe form.

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CAUTION

!Refunds that involve community property statesmust be divided according to local law. If youlive in a community property state in which all

community property is subject to the debts of eitherspouse, your entire refund can be used to pay thosedebts.

Separate ReturnsIf you and your spouse file separate returns, you should

each report only your own income, exemptions, de-ductions, and credits on your individual return. You canfile a separate return even if only one of you had in-come. For information on exemptions you can claim onyour separate return, see Exemptions, later.

Community or separate income. If you live in acommunity property state and file a separate return,your income may be separate income or communityincome for income tax purposes. For more information,see Community Income under Community Property,later.

Separate liability. If you and your spouse file sepa-rately, you each are responsible only for the tax dueon your own return.

Itemized deductions. If you and your spouse fileseparate returns and one of you itemizes deductions,the other spouse will not qualify for the standard de-duction and should also itemize deductions.

Dividing itemized deductions. You may be ableto claim itemized deductions on a separate return forcertain expenses that you paid separately or jointly withyour spouse. See Table 1.

Separate returns may give you a higher tax. Somemarried couples file separate returns because eachwants to be responsible only for his or her own tax. Butin almost all instances, if you file separate returns, youwill pay more combined federal tax than you would witha joint return. This is because the tax rate is higher formarried persons filing separately. The following rulesalso apply if you file a separate return.

1) You cannot take the credit for child and dependentcare expenses in most cases.

2) You cannot take the earned income credit.

3) You cannot take the exclusion or credit for adoptionexpenses in most instances.

4) You cannot take the credit for higher education ex-penses or the deduction for student loan interest.

5) You cannot exclude the interest from qualifiedsavings bonds that you used for higher educationexpenses.

6) If you lived with your spouse at any time during thetax year:

a) You cannot claim the credit for the elderly or thedisabled,

b) You will have to include in income up to 85%of any social security or equivalent railroad re-tirement benefits you received, and

c) You cannot roll over amounts from a traditionalIRA into a Roth IRA during a year you file aseparate return.

7) You will become subject to the limit on the child taxcredit, itemized deductions, and the phaseout of thededuction for personal exemptions at income levels

that are half of those for a joint return.

Joint return after separate returns. If either you oryour spouse files a separate return, you can change toa joint return any time within 3 years from the due date(not including extensions) of the separate returns. Thisapplies even if either of you filed as head of household.Use Form 1040X.

Separate returns after joint return. After the due dateof your return, you and your spouse cannot file sepa-rate returns if you previously filed a joint return.

Exception. A personal representative for a dece-

dent can change from a joint return elected by the sur-viving spouse to a separate return for the decedent. Thepersonal representative has one year from the due dateof the joint return to make the change.

Head of HouseholdYou may be eligible to file as head of household if youmeet the requirements discussed later.

Filing as head of household has the following ad-vantages.

1) You can claim the standard deduction even if yourspouse files a separate return and itemizes de-

ductions.2) Your standard deduction is higher than is allowed

on a single or married filing separate return.

3) Your tax rate may be lower than it is on a singleor married filing separate return.

4) You may be able to claim certain credits (such aschild care credit and earned income credit) youcannot claim on a married filing separate return.

5) You will become subject to the limit on itemizeddeductions and the phaseout of the deduction forpersonal exemptions at income levels that arehigher than the levels for a single or a married filing

separate return.

Requirements. You can file as head of household onlyif you were unmarried or considered unmarried on thelast day of the year. You also must have paid more thanhalf the cost of keeping up a home that was the mainhome for more than half the year (except for temporaryabsences, such as for school) for you and any of thefollowing qualifying persons.

1) Certain unmarried children. This includes yourunmarried child, grandchild, stepchild, foster child,or adopted child. A foster child must qualify as your

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Table 1. Itemized Deductions on Separate ReturnsThis table shows itemized deductions you can claim on your separate return whether you paid theexpenses separately with your own funds or jointly with your spouse. Caution: If you live in acommunity property state, these rules do not apply. See Community Income.

Itemized Deduction IF you...THEN you can deduct on yourseparate return...

Medical expenses

State income tax

Property tax

Mortgage interest

Casualty loss

Paid with funds deposited in a jointchecking account in which you and your

spouse have an equal interest

File a separate state income tax return

File a joint state income tax return andyou and your spouse are jointly andindividually liable for the full amount ofthe state income tax

File a joint state income tax return andyou are liable for only your own share ofstate income tax

Paid on property held as tenants by theentirety

Paid on property held as tenants by theentirety

Have a casualty loss on a home you ownas tenants by the entirety

One-half of the total medical expenses,unless you can show that you alone paid

the expenses.

The amount of state income tax youalone paid during the year.

The amount of state income tax youalone paid during the year.

The smaller of:

The state income tax you alone paidduring the year, or

The total state income tax you andyour spouse paid during the yearmultiplied by the following fraction.The numerator is the amount of yourgross income and the denominator isyour combined gross income.

The amount of property tax that youalone paid.

The amount of mortgage interest thatyou alone paid.

Half of the loss. Neither spouse mayreport the total casualty loss.

dependent and must have lived in your home for theentire year.

2) Certain married children. This includes your mar-ried child, grandchild, stepchild, foster child, oradopted child for whom you can claim an ex-emption. This also includes your married child,grandchild, stepchild, or adopted child for whomyou could claim an exemption except that:

a) By your written declaration you allow the non-custodial parent to claim the exemption, or

b) The noncustodial parent provided at least $600for the support of the dependent and claims theexemption under a pre-1985 agreement.

3) Other relatives. This includes any other relative forwhom you can claim an exemption. However, yourparent for whom you can claim an exemption doesnot have to live with you. (See Father or mother,later.) For a list of persons who are relatives forpurposes of these requirements, see 1. Member ofHousehold or Relationship Testunder DependencyTests, later.

Your married child or other relative will not qualify youas a head of household if you claim an exemption forthat person under a multiple support agreement (dis-cussed later).

Father or mother. If your parent for whom you canclaim an exemption does not live with you, you can fileas head of household if you paid more than half the costof keeping up a home that was your parent's main homefor the entire year. This includes paying more than halfthe cost of keeping your parent in a rest home or homefor the elderly.

Considered unmarried. Even if you are married, youwill be considered unmarried on the last day of the yearif you meet allof the following tests.

1) You do not file a joint return.

2) You paid more than half the cost of keeping up yourhome for the tax year.

3) Your spouse did not live in your home during thelast 6 months of the tax year.

4) Your home was, for more than half the year, themain home of your child, stepchild, adopted child,

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or for the entire year, the main home for your fosterchild. You generally must be able to claim an ex-emption for your child. However, you can still meetthis test if you cannot claim an exemption for yourchild only because:

a) By your written declaration you allow the non-custodial parent to claim the exemption, or

b) The noncustodial parent provided at least $600

for the support of the child and claims the ex-emption under a pre-1985 agreement.

Nonresident alien spouse. If your spouse was anonresident alien at any time during the tax year, andyou have not chosen to treat your spouse as a residentalien, you are considered unmarried for head ofhousehold purposes. However, your spouse is not aqualifying person for head of household purposes. Youmust have paid most of the cost of keeping up a homethat was the main home for most of the year for youand a qualifying person (other than your spouse) andmeet the other requirements to file as head of house-hold.

Keeping up a home. You are keeping up a home onlyif you pay more than half the cost of its upkeep. Thisincludes rent, mortgage interest, taxes, insurance onthe home, repairs, utilities, and food eaten in the home.This does not include the cost of clothing, education,medical treatment, or transportation for any member ofthe household.

More information. For more information on filing ashead of household, get Publication 501.

ExemptionsGenerally, you can deduct $2,800 for each exemptionyou claim in 2000. However, if your adjusted gross in-come is more than $96,700, see Phaseout of Ex-emptions, later.

There are two types of exemptions: personal ex-emptions and exemptions for dependents. If you areentitled to claim an exemption for a dependent (suchas your child), that dependent cannot claim his or herpersonal exemption on his or her own tax return.

Personal ExemptionsYou can claim your own exemption unless someoneelse can claim it. If you are married, you may be ableto take an exemption for your spouse. These are calledpersonal exemptions.

Exemption for Your Spouse

Your spouse is never considered your dependent. Youmay be able to take an exemption for your spouse onlybecause you are married.

Joint return. On a joint return, you can claim one ex-emption for yourself and one for your spouse.

If your spouse had any gross income, you canclaim his or her exemption only if you file a joint return.

Separate return. If you file a separate return, you cantake an exemption for your spouse only if your spousehad no gross income and was not the dependent ofanother taxpayer. If your spouse is the dependent ofanother taxpayer, you cannot claim an exemption foryour spouse even if the other taxpayer does not actuallyclaim your spouse's exemption.

Alimony paid. If you paid alimony to your spouse,you cannot take an exemption for your spouse. This isbecause alimony is gross income to the spouse whoreceived it.

Divorced or separated spouse. You cannot take anexemption for your former spouse for the year in whichyou were divorced or legally separated under a finaldecree. This rule applies even if you paid all your formerspouse's support that year.

Exemptions for DependentsYou can take an exemption for each person who meetsall fiveof the dependency tests discussed later.

CAUTION

!If you can claim an exemption for your de-pendent, the dependent cannot claim his or herown exemption on his or her own tax return.

This is true even if you do not claim the dependent'sexemption on your return or if the exemption will bereduced or eliminated under the phaseout rule forhigh-income individuals.

Dependency TestsThe following five tests must be met for you to claiman exemption for a person (dependent) other thanyourself or your spouse.

1) Member of Household or Relationship Test.

2) Citizen or Resident Test.

3) Joint Return Test.

4) Gross Income Test.

5) Support Test.

1. Member of Householdor Relationship TestTo meet this test, the person must either:

1) Be related to you, or

2) Live with you for the entire year as a member ofyour household.

Related. A person related to you in any of the followingways meets this test even if he or she did not live withyou for the entire year as a member of your household.

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Any relationships that have been established by mar-riage are not considered ended by death or divorce.

Child. Your child is:

1) Your son, daughter, stepson, stepdaughter, or le-gally adopted son or daughter,

2) A child who lived with you in your home as amember of your family, if placed with you by anauthorized placement agency for legal adoption, or

3) A foster child (any child who lived with you in yourhome as a member of your family for the entireyear).

Member of household. If the person is not related toyou, he or she must have lived in your home as amember of your household for the entire year (exceptfor temporary absences, such as for vacation orschool). A person is not a member of your householdif at any time during your tax year the relationship be-tween you and that person violates local law.

2. Citizen or Resident TestTo meet the citizen or resident test, a person must be

a U.S. citizen or resident, or a resident of Canada orMexico for some part of the calendar year in which yourtax year begins.

Children usually are citizens or residents of thecountry of their parents. If you were a U.S. citizen whenyour child was born, the child may be a U.S. citizenalthough the other parent was a nonresident alien andthe child was born in a foreign country. If so, and theother dependency tests are met, the child is your de-pendent and you may take the exemption. It does notmatter if the child lives abroad with the nonresident al-ien parent.

Special rule for your adopted child. If you are a U.S.citizen living abroad who has legally adopted a childwho meets the other dependency tests, the citizen orresident test does not apply. You can take the ex-emption if your home is the child's main home and thechild is a member of your household for the entire year.

3. Joint Return TestEven if the other dependency tests are met, you aregenerally not allowed an exemption for a person otherthan yourself or your spouse if he or she files a jointreturn. However, this test does not apply if a joint returnis filed by a dependent and his or her spouse merely

Child Stepmother as a claim for refund and no tax liability would exist foreither spouse on the basis of separate returns.

4. Gross Income TestGenerally, you cannot take an exemption for a personother than yourself or your spouse if that person hadgross income of $2,800 or more for the year. All incomein the form of money, property, and services that is notexempt from tax is gross income. Gross income doesnot include nontaxable income, such as welfare benefitsor nontaxable social security benefits.

Special rules for your child. The gross income testdoes not apply if your child:

1) Is under age 19 at the end of the year, or

2) Is a student during the year and is under age 24at the end of the year.

Child. See 1. Member of Household or RelationshipTest, earlier, for the definition of child.

Student. To qualify as a student, your child mustbe, during some part of each of 5 calendar months

during the year (not necessarily consecutive):

1) A full-time student at a school that has a regularteaching staff and course of study, and a regularlyenrolled body of students in attendance, or

2) A student taking a full-time, on-farm training coursegiven by a school described in (1) above or by astate, county, or local government.

A full-time student is one who is enrolled for thenumber of hours or courses the school considers to befull-time attendance.

The term school includes elementary schools, jun-

ior and senior high schools, colleges, universities, andtechnical, trade, and mechanical schools. It does notinclude on-the-job training courses, correspondenceschools, or night schools.

5. Support TestYou must provide more than half of a person's totalsupport for the calendar year to meet the support test.If you file a joint return, the support could have comefrom you or your spouse. Even if you did not provideover half the person's support, you will be treated ashaving provided over half the support if you meet thetests explained later under Multiple Support Agreement.

If you are divorced or separated and you or the other

parent, or both together, provided over half your child'ssupport for the year, the support test for your child maybe based on a special rule. See Support Test for Chil-dren of Divorced or Separated Parents, later.

In figuring total support, you must include money theperson provided for his or her own support, even if thismoney was not taxable (for example, gifts, savings, andwelfare benefits). If your child was a student, do notinclude amounts he or she received as scholarshipswhile a full-time student.

Support includes food, a place to live, clothes, med-ical and dental care, recreation, and education. In fig-uring support, use the actual cost of these items.

Stepchild StepfatherMother Mother-in-lawFather Father-in-lawGrandparent Brother-in-lawGreat-grandparent Sister-in-lawBrother Son-in-lawSister Daughter-in-lawGrandchild If related by blood:Great-grandchild UncleHalf-brother Aunt

Half-sister NephewStepbrother NieceStepsister

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However, the cost of a place to live is figured at its fairrental value.

Support does not include income tax, social securityand Medicare taxes, premiums for life insurance, orfuneral expenses.

Joint ownership of home. If the person lives with youin a home that is jointly owned by you and your spouseor former spouse, and each of you has the right to useand live in the home, each of you is considered to

provide half of the person's lodging. However, if yourdecree of divorce gives only you the right to use and livein the home, you are considered to provide the person'sentire lodging. This is true even though legal title to thehome remains in the names of both you and your for-mer spouse.

Capital items. You must include capital items suchas a car or furniture in figuring support, but only if theywere actually given to, or bought by, the person for hisor her use or benefit. Do not include the cost of acapital item for the use or benefit of other members ofthe household. For example, include in support a bicy-cle purchased by and used solely by the person fortransportation; do not include a lawn mower you pur-chase that is occasionally used by the person.

Support Test forChildren of Divorcedor Separated ParentsThe support test for a child of divorced or separatedparents is based on the special rule explained here andin Figure 1. However, the special rule applies only ifthe parents meet all three of the following require-ments.

1) The parents are:a) Divorced or legally separated under a decree

of divorce or separate maintenance,

b) Separated under a written separation agree-ment, or

c) Lived apart at all times during the last 6 monthsof the calendar year.

2) One or both parents provide more than half thechild's total support for the calendar year.

3) One or both parents have custody of the child formore than half the calendar year.

The special rule does not apply if:

The child's support is determined under a multiplesupport agreement discussed later, or

The child's parents never married each other.

Child is defined earlier under 1. Member of House-hold or Relationship Test.

Support provided by others. Support provided to achild of a divorced or separated parent by a relative orfriend is not included as support provided by the parent.

However, if you remarried, the support your newspouse provided is treated as provided by you.

Example 1. You are divorced. During the wholeyear, you and your child lived with your mother in ahouse she owns. You must include your child's shareof the fair rental value of the home in figuring totalsupport, but not as part of the support provided by you.

Example 2. You have two children from a formermarriage who lived with you. You remarried and lived

in a home owned by your present spouse. Your child'sshare of the fair rental value of the home is treated asprovided by you.

Custodial parent. Under the special rule, the parentwho had custody of the child for the greater part of theyear (the custodial parent) is generally treated as theparent who provided more than half of the child's sup-port. This parent is usually allowed to claim the ex-emption for the child if the other dependency tests aremet. However, see Noncustodial parent, later.

Custody. Custody is usually determined by theterms of the most recent decree of divorce or separatemaintenance, or a later custody decree. If there is no

decree, it will be determined by the written separationagreement.

If neither a decree nor an agreement establishescustody, then the parent who had physical custody ofthe child for the greater part of the year is consideredto have custody of the child. This also applies if a de-cree or agreement calls for split custody, or if the va-lidity of a decree or agreement awarding custody isuncertain because of legal proceedings pending on thelast day of the calendar year.

If the parents were divorced or separated during theyear after having had joint custody of the child beforethe separation, the parent who had custody for thegreater part of the rest of the year is considered thecustodial parent.

Example 1. Under the terms of your divorce decree,you had custody of your child for 10 months of the year.Your former spouse had custody for the other 2 months.You and your former spouse provided the child's totalsupport. You are considered to have provided morethan half the child's support because you are the cus-todial parent.

Example 2. You and your former spouse providedyour child's total support for the year. You had custodyof your child under your 1990 divorce decree, but inOctober 2000, a new custody decree granted custody

to your former spouse. Because you had custody for thegreater part of the year, you are the custodial parentand are considered to have provided more than half ofyour child's support.

Example 3. You were separated on June 1. Beforethe separation, you and your spouse had joint custodyof your child. Your spouse had custody from Junethrough September and you had custody from Octoberthrough December. Because your spouse had custodyfor 4 of the 7 months following the separation, yourspouse was the custodial parent for the year and istreated as having provided more than half of the child'ssupport for the year.

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Figure 1. Support Test for Children of Divorced or Separated Parents

Start Here

No

Yes

Are the parents divorcedor legally separated,separated under a writtenagreement, or did they

live apart the last 6months of the year?

Did one or both parentsfurnish over half of thechilds total support?

Is the child in the custodyof one or both parents formore than half of the

year?

Did the custodial parentsign a Form 8332 orsimilar statementreleasing the exemption?

Did any one personprovide over half of

the childs totalsupport?

The person who providedover half of the childs

support meets thesupport test.

See Multiple SupportAgreement.

Is there a decree oragreement executedafter 1984 thatunconditionallyentitles thenoncustodial parentto the exemption?

Is there a decree oragreement executedbefore 1985 (and notmodified after 1984)that entitles thenoncustodial parentto the exemption?

Did the noncustodialparent provide atleast $600 of thechilds supportduring the year?

The custodialparent meets thesupport test.

The noncustodial parentmeets the support test.

Yes

Yes

Yes

No

No

No

No

Yes

NoYes

Yes

Yes

No

No

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Noncustodial parent. Under the special rule, theparent who did not have custody, or who had it for theshorter time, is the noncustodial parent. The noncusto-dial parent is treated as the parent who provided morethan half of the child's support if any one of the followingthree conditions is met.

1) The custodial parent signs a written declaration thathe or she will not claim the exemption for the child,and the noncustodial parent attaches this written

declaration to his or her return.

2) A decree or agreement went into effect after 1984and states the noncustodial parent can claim thechild as a dependent without regard to any condi-tion, such as payment of support.

3) A decree or agreement executed before 1985pro-vides that the noncustodial parent is entitled to theexemption, and he or she gave at least $600 for thechild's support during the year. This is true unlessthe pre-1985 decree or agreement was modifiedafter 1984 to specify that this provision will not ap-ply.

Example 1. Under your 1984 divorce decree, yourformer spouse has custody of your child. The decreespecifically states that you can claim the child's ex-emption. You provided $1,000 of your child's supportduring the year and your spouse provided the rest. Youare considered to have provided over half the child'ssupport. See item (3) above.

Example 2. You and your spouse provided all ofyour child's support. Under your 1988 written sepa-ration agreement, your spouse has custody of yourchild. Because the agreement was made after 1984,you are considered to have provided over half thechild's support only if your spouse agrees not to claimthe child's exemption by signing a written declaration.See item (1) above.

Written declaration. The custodial parent shoulduse Form 8332, or a similar statement, to make thewritten declaration to release the exemption to thenoncustodial parent. The noncustodial parent must at-tach the form or statement to his or her tax return.

The exemption can be released for a single year, fora number of specified years (for example, alternateyears), or for all future years, as specified in the dec-laration. If the exemption is released for more than oneyear, the original release must be attached to the returnof the noncustodial parent for the first year, and a copy

of the release must be attached to the return for eachsucceeding taxable year for which the noncustodialparent claims the exemption.

Divorce decree or separation agreement madeafter 1984. If your divorce decree or separationagreement went into effect after 1984 and it states thatyou can claim the exemption for your child without re-gard to any condition, such as payment of support,you can attach a copy of the following pages from thedecree or agreement instead of Form 8332.

1) The cover page (write the other parent's social se-curity number on this page).

2) The page that states you can claim the exemptionfor your child.

3) The signature page with the other parent's signa-ture and the date of the agreement.

CAUTION

!If your divorce decree or separation agreementwent into effect after 1984 and it states that youcan claim the exemption for your child if you

meet certain conditions, you must attach to your re-

turn Form 8332 or a similar statement from the custodialparent releasing the exemption.

Divorce decree or separation agreement madebefore 1985. If you are a noncustodial parent whoclaims a child's exemption under a decree or agreementmade before 1985, you must give at least $600 for thatchild's support.

Child support. Child support payments receivedfrom the noncustodial parent are considered used forthe child's support, even if actually spent on things otherthan support.

Example. Your 1982 divorce decree requires you

to pay child support to the custodial parent and statesthat you can claim your child's exemption. The custodialparent paid for all support items and put the $1,000child support you paid during the year into a savingsaccount for the child. Because your payments areconsidered used for support, you are considered tohave provided over half the child's support.

Back child support. If you fail to pay child supportin the year it is due, but pay it in a later year, any pay-ment of the overdue amount is not considered childsupport either for the year it was due or for the year inwhich it is paid. It is payment of an amount owed to thecustodial parent, but it is not child support provided byyou.

Example. You and your former spouse provide allyour child's support. Your 1984 divorce decree requiresyou to pay $800 child support each year to the custodialparent and allows you to claim your child's exemption.Last year you paid only $500, but you made up the$300 you owed by paying $1,100 this year. The $300back child support you paid this year is not consideredsupport for last year or for this year.

Medical ExpensesA child of divorced or separated parents whose supporttest is based on the special rule described in this sec-

tion is treated as a dependent of both parents for themedical expense deduction. A parent can deduct med-ical expenses he or she paid for the child even if anexemption for the child is claimed by the other parent.

Multiple Support AgreementSometimes no one individual provides more than halfof the support of a person. Instead, two or more people,each of whom would be able to take the exemption butfor the support test, together provide more than half ofthe person's support. One of those people can claiman exemption for that person if the requirements inFigure 2are met.

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Figure 2. Can You Claim an Exemption for a PersonUnder a Multiple Support Agreement?

If no one person alone pays more than half of another persons support, use this chart to see if you can claiman exemption for that person under a multiple support agreement.

Start Here

Yes

NoDid you pay over 10% of another person s support?

Could you claim the other persons exemption were it not for thesupport test?

Could at least one other individual claim the other person sexemption were it not for the support test?

Did you and that other individual or those other people together

pay over half of the other persons support?

Did anyone alone pay over half of the other persons support?

Are you attaching to your tax return a Form 2120 signed by everyother individual who paid over 10% of the other person s supportand could claim the persons exemption were it not for thesupport test?

You can claim the persons exemption under amultiple support agreement.

You cannot claim the persons exemption under amultiple support agreement.

Yes

Yes

Yes

No

Yes

No

No

No

Yes

No

Phaseout of ExemptionsThe amount you can claim as a deduction for ex-emptions is phased out if your adjusted gross income(AGI) for 2000 falls within the range shown below foryour filing status.

If your AGI is more than the highest amount for yourfiling status, your deduction for exemptions is zero. Ifyour AGI falls within the range, use the Deduction forExemptions Worksheet in the instructions for Form1040 to figure your deduction.

AlimonyAlimony is a payment to or for a spouse or formerspouse under a divorce or separation instrument. Itdoes not include voluntary payments that are not made

under a divorce or separation instrument.Alimony is deductible by the payer and must be in-cluded in the spouse's or former spouse's income. Al-though this discussion is generally written for the payerof the alimony, the recipient can use the information todetermine whether an amount received is alimony.

To be alimony, a payment must meet certain re-quirements. Different requirements apply to paymentsunder instruments executed after 1984 and to paymentsunder instruments executed before 1985. These re-quirements are discussed later.

Filing Status AGISingle ........................................................... $128,950 $251,450Married filing jointly or qualifying widow(er) . $193,400 $315,900Married filing separately ............................... $96,700 $157,950Head of household ....................................... $161,150 $283,650

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Spouse or former spouse. Unless otherwise statedin the following discussions about alimony, the termspouse includes former spouse.

Divorce or separation instrument. The term divorceor separation instrument means:

1) A decree of divorce or separate maintenance or awritten instrument incident to that decree,

2) A written separation agreement, or

3) A decree or any type of court order requiring aspouse to make payments for the support or main-tenance of the other spouse. This includes a tem-porary decree, an interlocutory (not final) decree,and a decree of alimony pendente lite(whileawaiting action on the final decree or agreement).

Invalid decree. Payments under a divorce decreecan be alimony even if the decree's validity is in ques-tion. A divorce decree is valid for tax purposes until acourt having proper jurisdiction holds it invalid.

Amended instrument. An amendment to a divorcedecree may change the nature of your payments.Amendments are not ordinarily retroactive for federaltax purposes. However, a retroactive amendment to adivorce decree correcting a clerical error to reflect theoriginal intent of the court will generally be effectiveretroactively for federal tax purposes.

Example 1. A court order retroactively corrected amathematical error under your divorce decree to ex-press the original intent to spread the payments overmore than 10 years. This change also is effectiveretroactively for federal tax purposes.

Example 2. Your original divorce decree did not fix

any part of the payment as child support. To reflect thetrue intention of the court, a court order retroactivelycorrected the error by designating a part of the paymentas child support. The amended order is effectiveretroactively for federal tax purposes.

Deducting alimony paid. You can deduct alimony youpaid, whether or not you itemize deductions on yourreturn. You must file Form 1040. You cannot use Form1040A or Form 1040EZ.

Enter the amount of alimony you paid on line 31a(Form 1040). In the space provided on line 31b, enteryour spouse's social security number.

If you paid alimony to more than one person, enterthe social security number of one of the recipients.Show the social security number and amount paid toeach other recipient on an attached statement. Enteryour total payments on line 31a.

CAUTION

!If you do not provide your spouse's social se-curity number, you may have to pay a $50penalty and your deduction may be disallowed.

Reporting alimony received. Report alimony you re-ceived on line 11 of Form 1040. You cannot use Form1040A or Form 1040EZ.

CAUTION

!You must give the person who paid the alimonyyour social security number. If you do not, youmay have to pay a $50 penalty.

Withholding on nonresident aliens. If you are a U.S.citizen or resident and you pay alimony to a nonresidentalien spouse, you must withhold income tax at a rateof 30% (or lower treaty rate) on each payment unlessyou are exempted by an income tax treaty. For moreinformation, get Publication 515, Withholding of Tax onNonresident Aliens and Foreign Corporations.

General RulesThe following rules apply to alimony regardless of whenthe divorce or separation instrument was executed.

Payments not alimony. Not all payments under a di-vorce or separation instrument are alimony. Alimonydoes not include:

1) Child support,

2) Noncash property settlements,

3) Payments that are your spouse's part of communityincome, as explained later under Community Prop-erty,

4) Payments to keep up the payer's property, or

5) Use of property.

Example. Under your written separation agreement,your spouse lives rent-free in a home you own and youmust pay the mortgage, real estate taxes, insurance,repairs, and utilities for the home. Because you own thehome and the debts are yours, your payments for themortgage, real estate taxes, insurance, and repairs are

not alimony. Neither is the value of your spouse's useof the home.If they otherwise qualify, you can deduct the pay-

ments for utilities as alimony. Your spouse must reportthem as income. If you itemize deductions, you candeduct the real estate taxes and, if the home is aqualified home, you can also include the interest on themortgage in figuring your deductible interest.

Child support. To determine whether a payment ischild support, see the separate discussions under In-struments Executed After 1984 or Instruments Exe-cuted Before 1985, later.

Underpayment. If both alimony and child supportpayments are called for by your divorce or separationinstrument, and you pay less than the total required, thepayments apply first to child support and then toalimony.

Example. Your divorce decree calls for you to payyour former spouse $200 a month as child support and$150 a month as alimony. If you pay the full amountof $4,200 during the year, you can deduct $1,800 asalimony and your former spouse must report $1,800 asalimony received. If you pay only $3,600 during theyear, $2,400 is child support. You can deduct only$1,200 as alimony and your former spouse must report$1,200 as alimony received.

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Payments to a third party. Cash payments (includingchecks and money orders) to a third party on behalf ofyour spouse under the terms of your divorce or sepa-ration instrument may be alimony, if they otherwisequalify. These include payments for your spouse'smedical expenses, housing costs (rent, utilities, etc.),taxes, tuition, etc. The payments are treated as re-ceived by your spouse and then paid to the third party.

Example 1. Under your divorce decree, you must

pay your former spouse's medical and dental expenses.If the payments otherwise qualify, you can deduct themas alimony on your return. Your former spouse mustreport them as alimony received and can include themin figuring deductible medical expenses.

Example 2. Under your separation agreement, youmust pay the real estate taxes, mortgage payments,and insurance premiums on a home owned by yourspouse. If they otherwise qualify, you can deduct thepayments as alimony on your return, and your spousemust report them as alimony received. If itemizing de-ductions, your spouse can deduct the real estate taxesand, if the home is a qualified home, also include the

interest on the mortgage in figuring deductible interest.

Life insurance premiums. Alimony includes premi-ums you must pay under your divorce or separationinstrument for insurance on your life to the extent yourspouse owns the policy.

Payments for jointly-owned home. If your divorceor separation instrument states that you must pay ex-penses for a home owned by you and your spouse orformer spouse, some of your payments may bealimony. See Table 2.

Instruments Executed After 1984The following rules for alimony apply to payments underdivorce or separation instruments executed after 1984.They also apply to alimony payments under earlier in-struments that were modified after 1984 to:

1) Specify that these rules will apply, or

2) Change the amount or period of payment or addor delete any contingency or condition.

The rules in this section do not apply to divorce orseparation instruments executed after 1984 if the termsfor alimony are unchanged from an instrument executedbefore 1985. For the rules for alimony payments underother pre-1985 instruments, see Instruments ExecutedBefore 1985, later.

Example 1. In November 1984, you and your formerspouse executed a written separation agreement. InFebruary 1985, a decree of divorce was substituted forthe written separation agreement. The decree of di-vorce did not change the terms for the alimony you payyour former spouse. The decree of divorce is treatedas executed before 1985. Alimony payments under thisdecree are not subject to the rules for payments underinstruments executed after 1984.

Example 2. Assume the same facts as in Example1 except that the decree of divorce changed the amountof the alimony. In this example, the decree of divorceis not treated as executed before 1985. The alimonypayments are subject to the rules for payments underinstruments executed after 1984.

Alimony RequirementsA payment to or for a spouse under a divorce or sepa-ration instrument is alimony if the spouses do not filea joint return with each other and all the following re-quirements are met.

1) The payment is in cash.

2) The instrument does not designate the payment asnot alimony.

3) The spouses are not members of the same house-hold at the time the payments are made. This re-quirement applies only if the spouses are legallyseparated under a decree of divorce or separatemaintenance.

4) There is no liability to make any payment (in cash

or property) after the death of the recipient spouse.5) The payment is not treated as child support.

Each of these requirements is discussed below.

Payment must be in cash. Only cash payments, in-cluding checks and money orders, qualify as alimony.The following do not qualify as alimony.

Transfers of services or property (including a debtinstrument of a third party or an annuity contract).

Execution of a debt instrument by the payor.

The use of property.

Payments to a third party. Cash payments to athird party under the terms of your divorce or separationinstrument can qualify as a cash payment to yourspouse. See Payments to a third partyunder GeneralRules, earlier.

Also, cash payments made to a third party at thewritten request of your spouse qualify as alimony if allthe following requirements are met.

1) The payments are in lieu of payments of alimonydirectly to your spouse.

2) The written request states that both spouses intendthe payments to be treated as alimony.

3) You receive the written request from your spousebefore you file your return for the year you made thepayments.

Payments designated as not alimony. You and yourspouse can designate that otherwise qualifying pay-ments are not alimony. You do this by including a pro-vision in your divorce or separation instrument thatstates the payments are not deductible by you and areexcludable from your spouse's income. For this pur-pose, any instrument (written statement) signed by bothof you that makes this designation and that refers to a

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Table 2. Expenses for a Jointly-Owned HomeUse the table below to find how much of your payment is alimony and how much you can claim asan itemized deduction.

IF you must pay all ofthe...

AND your home is... THEN you can deductand your spouse (orformer spouse) mustinclude as alimony...

AND you can claim asan itemized deduction...

Mortgage payments

(principal and interest)

Real estate taxes andhome insurance

Jointly-owned

Held as tenants incommon

Held as tenants by theentirety or in jointtenancy

One-half of the total

payments

One-half of the totalpayments

None of the payments

One-half of the interest as

interest expense (if thehome is a qualifiedhome).

1

One-half of the real estatetaxes

2and none of the

home insurance.

All of the real estate taxesand none of the homeinsurance.

1Your spouse (or former spouse) can deduct the other one-half of the interest if the home is a qualified home.

2Your spouse (or former spouse) can deduct the other one-half of the real estate taxes.

previous written separation agreement is treated as awritten separation agreement. If you are subject totemporary support orders, the designation must bemade in the original or a later temporary support order.

Your spouse can exclude the payments from incomeonly if he or she attaches a copy of the instrumentdesignating them as not alimony to his or her return.The copy must be attached each year the designationapplies.

Spouses cannot be members of the same house-hold. Payments to your spouse while you are membersof the same household are not alimony if you are legallyseparated under a decree of divorce or separate

maintenance. A home you formerly shared is consid-ered one household, even if you physically separateyourselves in the home.

You are not treated as members of the samehousehold if one of you is preparing to leave thehousehold and does leave no later than one month afterthe date of the payment.

Exception. If you are not legally separated undera decree of divorce or separate maintenance, a pay-ment under a written separation agreement, supportdecree, or other court order may qualify as alimonyeven if you are members of the same household whenthe payment is made.

Liability for payments after death of recipientspouse. If you must continue to make payments forany period after your spouse's death, none of the pay-ments made before or after the death are alimony.

The divorce or separation instrument does not haveto expressly state that the payments cease upon thedeath of your spouse if, for example, the liability forcontinued payments would end under state law.

Example. You must pay your former spouse$10,000 in cash each year for 10 years. Your divorcedecree states that the payments will end upon yourformer spouse's death. You must also pay your former

spouse or your former spouse's estate $20,000 in casheach year for 10 years. The death of your spouse wouldnot terminate these payments under state law.

The $10,000 annual payments are alimony. But be-cause the $20,000 annual payments will not end uponyour former spouse's death, they are not alimony.

Substitute payments. If you must make any pay-ments in cash or property after your spouse's death asa substitute for continuing otherwise qualifying pay-ments, the otherwise qualifying payments are notalimony. To the extent that your payments begin, ac-celerate, or increase because of the death of yourspouse, otherwise qualifying payments you made may

be treated as payments that were not alimony. Whetheror not such payments will be treated as not alimonydepends on all the facts and circumstances.

Example 1. Under your divorce decree, you mustpay your former spouse $30,000 annually. The pay-ments will stop at the end of 6 years or upon your for-mer spouse's death, if earlier.

Your former spouse has custody of your minor chil-dren. The decree provides that if any child is still a mi-nor at your spouse's death, you must pay $10,000 an-nually to a trust until the youngest child reaches the ageof majority. The trust income and corpus (principal) areto be used for your children's benefit.

These facts indicate that the payments to be madeafter your former spouse's death are a substitute for$10,000 of the $30,000 annual payments. $10,000 ofeach of the $30,000 annual payments is not alimony.

Example 2. Under your divorce decree, you mustpay your former spouse $30,000 annually. The pay-ments will stop at the end of 15 years or upon yourformer spouse's death, if earlier. The decree providesthat if your former spouse dies before the end of the15-year period, you must pay the estate the differencebetween $450,000 ($30,000 15) and the total amountpaid up to that time. For example, if your spouse dies

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at the end of the tenth year, you must pay the estate$150,000 ($450,000 $300,000).

These facts indicate that the lump-sum payment tobe made after your former spouse's death is a substi-tute for the full amount of the $30,000 annual payments.None of the annual payments are alimony. The resultwould be the same if the payment required at deathwere to be discounted by an appropriate interest factorto account for the prepayment.

Child support. A payment that is specifically desig-nated as child support or treated as specifically desig-nated as child support under your divorce or separationinstrument is not alimony. The designated amount orpart may vary from time to time. Child support paymentsare neither deductible by the payer nor taxable to thepayee.

Specifically designated as child support. A pay-ment will be treated as specifically designated as childsupport to the extent that the payment is reduced either:

1) On the happening of a contingency relating to yourchild, or

2) At a time that can be clearly associated with thecontingency.

A payment may be treated as specifically designatedas child support even if other separate payments arespecifically designated as child support.

Contingency relating to your child. A contingencyrelates to your child if it depends on any event relatingto that child. It does not matter whether the event iscertain or likely to occur. Events relating to your childinclude the child's:

Becoming employed,

Dying,

Leaving the household,

Leaving school,

Marrying, or

Reaching a specified age or income level.

Clearly associated with a contingency. Paymentsare presumed to be reduced at a time clearly associ-ated with the happening of a contingency relating toyour child only in the following situations.

1) The payments are to be reduced not more than 6months before or after the date the child will reach

18, 21, or local age of majority.2) The payments are to be reduced on two or more

occasions that occur not more than one year beforeor after a different one of your children reaches acertain age from 18 to 24. This certain age mustbe the same for each child, but need not be a wholenumber of years.

In all other situations, reductions in payments are nottreated as clearly associated with the happening of acontingency relating to your child.

Either you or the IRS can overcome the presumptionin the two situations above. This is done by showing

that the time at which the payments are to be reducedwas determined independently of any contingenciesrelating to your children. For example, if you can showthat the period of alimony payments is customary in thelocal jurisdiction, such as a period equal to one-half ofthe duration of the marriage, you can treat the amountas alimony.

Recapture of AlimonyIf your alimony payments decrease or terminate duringthe first 3 calendar years, you may be subject to therecapture rule. If you are subject to this rule, you haveto include in income in the third year part of the alimonypayments you previously deducted. Your spouse candeduct in the third year part of the alimony paymentshe or she previously included in income.

The 3-year period starts with the first calendar yearyou make a payment qualifying as alimony under adecree of divorce or separate maintenance or a writtenseparation agreement. Do not include any time inwhich payments were being made under temporarysupport orders. The second and third years are the next2 calendar years, whether or not payments are madeduring those years.

The reasons for a reduction or termination of alimonypayments 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 subjectto the recapture rule in the third year if the alimony youpay in the third year decreases by more than $15,000from the second year or the alimony you pay in the

second and third years decreases significantly from thealimony you pay in the first year.

When you figure a decrease in alimony, do not in-clude the following amounts.

1) Payments made under a temporary support order.

2) Payments required over a period of at least 3 cal-endar years of a fixed part of your income from abusiness or property, or from compensation foremployment or self-employment.

3) Payments that decrease because of the death ofeither spouse or the remarriage of the spouse re-ceiving the payments.

How to figure and report the recapture. Both youand your spouse can use Table 3 to figure recapturedalimony.

Including the recapture in income. If you mustinclude a recapture amount in income, show it on Form1040, line 11 (Alimony received). Cross outreceived and write recapture. On the dotted line nextto the amount, enter your spouse's last name and socialsecurity number.

Deducting the recapture. If you can deduct a re-capture amount, show it on Form 1040, line 31a(Alimony paid). Cross out paid and write

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recapture. In the space provided, enter your spouse'ssocial security number.

Example. You pay your former spouse $50,000alimony the first year, $39,000 the second year, and$28,000 the third year. You complete Table 3as shownon Filled-in Table 3. In the third year, you report $1,500as income on line 11, Form 1040, and your formerspouse reports $1,500 as a deduction on line 31a, Form1040.

Instruments Executed Before 1985The following rules for alimony apply to payments underdivorce or separation instruments executed before1985. However, if the instrument was modified after1984 to specify that the rules for instruments executedafter 1984 apply, or to change the terms regarding theamount or period of payment or other contingency orcondition, follow the rules under Instruments ExecutedAfter 1984, earlier.

Alimony RequirementsA payment to or for a spouse under a divorce or sepa-

ration instrument is alimony if the spouses do not filea joint return and the payment meets both of the fol-lowing requirements.

1) It is based on the marital or family relationship.

2) It is not child support.

In addition, the spouses must be separated and livingapart for a payment under a separation agreement orcourt order to qualify as alimony.

Payments of a fixed sum. If you must pay a fixed sumin installments, your payments during the year that youtreat as alimony cannot be more than 10% of the fixedsum. This limit applies to payments for the current yearand payments in advance, but not to late payments foran earlier year.

However, do not treat any part of a late installmentpayment as alimony if the fixed sum was payable overa period ending 10 years or less from the date of thedivorce or separation instrument.

Payments subject to contingencies. Paymentsare not considered installment payments of a fixed sumif they are to end or change in amount on the happeningof one or moreof the following contingencies.

1) The death of you or your spouse.

2) The remarriage of your spouse.3) A change in the economic status of you or your

spouse.

The contingency may be either specified in your in-strument or imposed by local law.

Marital or family relationship. To be alimony, yourpayments must be based on your obligation, becauseof the marital or family relationship, to continue sup-porting your spouse. Any payment that does not ariseout of that support obligation, such as the repaymentof a loan, is not alimony.

Property settlement. Payments are not based onyour obligation to continue support if they are a settle-ment of property rights. However, even if a state courtdescribes payments made under a divorce decree aspayments for property rights, they are alimony if theyare made to fulfill a legal support obligation and theyotherwise qualify.

Child support. A payment that is specifically desig-nated as child support under your divorce or separation

instrument is not alimony. If the instrument calls forpayments that otherwise qualify as alimony and doesnot separately designate an amount as child support,all the payments are alimony. This is true even if thepayments are subject to a contingency relating to yourchild.

Example. Your divorce decree states that you mustpay your former spouse $400 a month for life for thesupport of your former spouse and your child. Thepayment is to be reduced to $300 upon the first of thefollowing to happen: the child's death, the child's 22ndbirthday, or the child's marriage. Despite these contin-gencies, no amount of child support is fixed by the de-

cree. The entire payment is alimony.

Alimony Trusts, Annuities,and Endowment ContractsIf you transferred property to a trust or bought ortransferred an annuity or endowment contract to paythe alimony you owe, the trust income or other pro-ceeds that would ordinarily be includible in your incomemust be included in your former spouse's income asalimony received. You do not include the payments inyour income, nor can you deduct them as alimony paid.This rule applies whether the proceeds are from theearnings or the principal of the transferred property. It

does not apply to any trust income that is fixed for childsupport.

Example. You must make monthly alimony pay-ments of $500. You bought your former spouse acommercial annuity contract paying $500 a month. Yourformer spouse must include the full amount receivedunder the contract in income, as alimony. It does notmatter whether the amount is paid out of principal orinterest. You do not include any part of the payment inyour income, nor can you deduct any part.

Annuity and endowment contracts. Proceeds fromannuity and endowment contracts bought for or trans-

ferred to a spouse after July 18, 1984, cannot betreated as alimony. However, this does not apply tocontracts bought or transferred to pay alimony under adivorce or separation instrument executed before July19, 1984, unless both spouses choose to have it apply.

Proceeds not alimony. If the proceeds from an an-nuity or endowment contract cannot be treated asalimony, the amount received is reduced by the costof the contract. Get Publication 575, Pension and An-nuity Income, for information on reporting annuities, andPublication 525, Taxable and Nontaxable Income, forinformation on reporting endowment proceeds.

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Table 3. Worksheet for Recapture of Alimony

Note: Do not enter less than zero on any line.

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.13.

14.

Alimony paid in 2nd year

Alimony paid in 3rd year

Floor

Add lines 2 and 3

Subtract line 4 from line 1

Alimony paid in 1st year

Adjusted alimony paid in 2nd year (line 1less line 5)


Add lines 7 and 8

Divide line 9 by 2

Floor

Add lines 10 and 11Subtract line 12 from line 6

Recaptured alimony. Add lines 5 and 13

$15,000

$15,000

*If you deducted alimony paid, report this amount as income on line 11, Form 1040.If you reported alimony received, deduct this amount on line 31a, Form 1040.

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.13.

*14.

Filled-in Table 3. Worksheet for Recapture of Alimony

Note: Do not enter less than zero on any line.

1.

2.

3.

4.

5.

6.

7.

8.9.

10.

11.

12.

13.

14.

Alimony paid in 2nd year


Floor

Add lines 2 and 3


Alimony paid in 1st year

Adjusted alimony paid in 2nd year (line 1less line 5)

Alimony paid in 3rd yearAdd lines 7 and 8

Divide line 9 by 2

Floor

Add lines 10 and 11


Recaptured alimony. Add lines 5 and 13

$15,000

$15,000

*If you deducted alimony paid, report this amount as income on line 11, Form 1040.If you reported alimony received, deduct this amount on line 31a, Form 1040.

1.

2.

3.

4.

5.

6.

7.

8.9.

10.

11.

12.

13.

*14.

28,000

39,000

28,00067,000

33,500

39,000

0

43,000

50,000

48,500

1,50 0

1,50 0

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If the proceeds from a trust cannot be treated asalimony, see the rules for reporting trust income inPublication 525.

Qualified DomesticRelations OrderA qualified domestic relations order (QDRO) is a judg-

ment, decree, or court order (including an approvedproperty settlement agreement) issued under a do-mestic relations law that:

1) Relates to the rights of someone other than a par-ticipant to receive benefits from a qualified retire-ment plan (such as most pension and profit-sharingplans) or a tax-sheltered annuity,

2) Relates to payment of child support, alimony, ormarital property rights to a spouse, former spouse,child, or other dependent of the participant, and

3) Specifies the amount or portion of the participant'sbenefits to be paid to the participant's spouse, for-mer spouse, child, or dependent.

Benefits paid to a child or dependent. Benefits paidunder a QDRO to the plan participant's child or de-pendent are treated as paid to the participant. For in-formation about the tax treatment of benefits from re-tirement plans, see Publication 575.

Benefits paid to a spouse or former spouse. Ben-efits paid under a QDRO to the plan participant'sspouse or former spouse generally must be included inthe spouse's or former spouse's income. If the partic-ipant contributed to the retirement plan, a prorated

share of the participant's cost (investment in the con-tract) is used to figure the taxable amount.

The spouse or former spouse can use the specialrules for lump-sum distributions if the benefits wouldhave been treated as a lump-sum distribution had theparticipant received them. For this purpose, consideronly the balance to the spouse's or former spouse'scredit in determining whether the distribution is a totaldistribution. See Lump-Sum Distributionsin Publication575 for information about the special rules.

Rollovers. If you receive an eligible rollover distri-bution under a QDRO as the plan participant's spouseor former spouse, you may be able to roll it over tax freeinto an individual retirement arrangement (IRA) or an-

other qualified retirement plan.For more information on the tax treatment of eligible

rollover distributions, see Publication 575.

Individual RetirementArrangementsThe following discussions explain some of the effectsof divorce or separation on traditional individual retire-ment arrangements (IRAs). Traditional IRAs are IRAsother than Roth, SIMPLE, or education IRAs.

Spousal IRA. If you get a final decree of divorce orseparate maintenance by the end of your tax year, youcannot deduct contributions you make to your formerspouse's traditional IRA. You can deduct only contri-butions to your own traditional IRA.

IRA transferred as a result of divorce. The transferof all or part of your interest in a traditional IRA to yourspouse or former spouse, under a decree of divorceor separate maintenance or a written instrument inci-dent to the decree, is not considered a taxable transfer.Starting from the date of the transfer, the traditional IRAinterest transferred is treated as your spouse's or for-mer spouse's traditional IRA.

IRA contribution and deduction limits. All taxablealimony you receive under a decree of divorce or sep-arate maintenance is treated as compensation for thecontribution and deduction limits for traditional IRAs.

More information. For more information about IRAs,see Publication 590.

Property SettlementsThere is no recognized gain or loss on the transfer ofproperty between spouses, or between former spousesif the transfer is because of a divorce. You may, how-ever, have to report the transaction on a gift tax return.See Gift Tax on Property Settlements, later. If you sellproperty that you own jointly to split the proceeds aspart of your property settlement, you each must reportyour share of the gain or loss on the sale. See Saleof Jointly-Owned Property, later.

Transfer Between SpousesNo gain or loss is recognized on a transfer of propertyfrom you to (or in trust for the benefit of):

Your spouse, or

Your former spouse, but only if the transfer is inci-dent to your divorce.

This rule applies even if the transfer was in exchangefor cash, the release of marital rights, the assumptionof liabilities, or other considerations.

However, this rule does not apply if your spouse orformer spouse is a nonresident alien. Nor does it apply

to certain transfers covered under Transfers in trust,later.

The term property includes all property whether realor personal, tangible or intangible, or separate or com-munity. It includes property acquired after the end ofyour marriage and transferred to your former spouse.It does not include services.

Medical savings accounts. If you transfer your in-terest in a medical savings account to your spouse orformer spouse under a divorce or separation instru-ment, it is not considered a taxable transfer. After thetransfer, the interest is treated as your spouse's medicalsavings account.

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Incident to divorce. A property transfer is incident toyour divorce if the transfer:

1) Occurs within one year after the date your marriageends, or

2) Is related to the ending of your marriage.

A divorce, for this purpose, includes the ending of yourmarriage by annulment or due to violations of statelaws.

Related to the ending of marriage. A propertytransfer is related to the ending of your marriage if boththe following conditions apply.

1) The transfer is made under your original or modifieddivorce or separation instrument.

2) The transfer occurs within 6 years after the dateyour marriage ends.

Unless these conditions are met, the transfer is pre-sumed not to be related to the ending of your marriage.However, this presumption will not apply if you canshow that the transfer was made to carry out the divi-sion of property owned by you and your spouse at the

time your marriage ended. For example, thepresumption will not apply if you can show that thetransfer was made more than 6 years after the end ofyour marriage because of business or legal factorswhich prevented earlier transfer of the property and thetransfer was made promptly after those factors weretaken care of.

Transfers to third parties. If you transfer property toa third party on behalf of your spouse (or formerspouse, if incident to your divorce), the transfer istreated as two transfers:

1) A transfer of the property from you to your spouse

or former spouse, and2) An immediate transfer of the property from your

spouse or former spouse to the third party.

You do not recognize gain or loss on the first transfer.Instead, your spouse or former spouse may have torecognize gain or loss on the second transfer.

For this treatment to apply, the transfer from you tothe third party must be one of the following:

1) Required by your divorce or separation instrument,

2) Requested in writing by your spouse or formerspouse, or

3) Consented to in writing by your spouse or formerspouse. The consent must state that both you andyour spouse or former spouse intend the transferto be treated as a transfer from you to your spouseor former spouse subject to the rules of section1041 of the Internal Revenue Code. You must re-ceive the consent before filing your tax return for theyear you transfer the property.

Transfers in trust. If you make a transfer of propertyin trust for the benefit of your spouse (or former spouse,if incident to your divorce), you generally do not recog-nize any gain or loss.

However, you must recognize gain or loss if, incidentto your divorce, you transfer an installment obligationin trust for the benefit of your former spouse. For infor-mation on the disposition of an installment obligation,see Publication 537, Installment Sales.

You also must recognize gain on the transfer ofproperty in trust in the amount by which the liabilitiesassumed by the trust, plus the liabilities to which theproperty is subject, exceed the total of your adjustedbasis in the transferred property.

Example. You own property with a fair market valueof $10,000 and an adjusted basis of $1,000. The trustdid not assume any liabilities. The property is subjectto a $5,000 liability. Your recognized gain on thetransfer of the property in trust for the benefit of yourspouse is $4,000 ($5,000 $1,000).

Reporting income from property. You should reportincome from property transferred to your spouse orformer spouse as shown on Table 4.

For information on the treatment of interest on U.S.savings bonds, see chapter 1 of Publication 550, In-

vestment Income and Expenses.

RECORDS

When you transfer property to your spouse (orformer spouse, if incident to divorce), you mustgive your spouse sufficient records to determine

the adjusted basis and holding period of the propertyon the date of the transfer. If you transfer investmentcredit property with recapture potential, you also mustprovide sufficient records to determine the amount andperiod of the recapture.

Tax treatment of property received. Property youreceive from your spouse (or former spouse, if thetransfer is incident to divorce) is treated as acquired bygift for income tax purposes. Its value is not taxable toyou.

Basis of property received. Your basis in propertyreceived from your spouse (or former spouse, if incidentto divorce) is the same as your spouse's adjusted basis.This applies for determining either gain or loss whenyou later dispose of the property. It applies whether theproperty's adjusted basis is less than, equal to, orgreater than either its value at the time of the transferor any consideration you paid. It also applies even if theproperty's liabilities are more than its adjusted basis.

This rule generally applies to all property received

after July 18, 1984, under a divorce or separation in-strument in effect after that date. It also applies to allother property received after 1983 for which you andyour spouse (or former spouse) made a section 1041election to apply this rule. For information about thatelection, see section 1.10411T(g) of the regulations.

Example. Karen and Don owned their home jointly.Karen transferred her interest in the home to Don aspart of their property settlement when they divorced lastyear. Don's basis in the interest received from Karen isher adjusted basis in the home. His total basis in thehome is their joint adjusted basis.

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Table 4. Property Transferred Pursuant to DivorceThe tax treatment of items of property transferred from you to your spouse or former spouse pursuantto divorce is shown below.

IF you transfer: THEN you: AND your spouse orformer spouse:

FOR more information,see

Income-producingproperty (such as aninterest in a business,

rental property, stocks, orbonds)

Include on your taxreturn any profit or loss,rental income or loss,

dividends, or interestgenerated or derivedfrom the property duringthe year until theproperty is transferred.

Reports any income orloss generated or derivedafter the property is

transferred.

Interest in a passiveactivity with unusedpassive activity losses

Investment creditproperty with recapturepotential

Cannot deduct youraccumulated unusedpassive activity lossesallocable to the interest.

Do not have to recaptureany part of the credit.

Increases the adjustedbasis of the transferredinterest by the amount ofthe unused losses.

May have to recapturepart of the credit if he orshe disposes of the

property or changes itsuse before the end of therecapture period.

Publication 925, PassiveActivity and At-Risk Rules

Form 4225, Recapture ofInvestment Credit

Property received before July 19, 1984. Your ba-sis in property received in settlement of marital supportrights before July 19, 1984, or under an instrument ineffect before that date (other than property for whichyou made a section 1041 election) is its fair marketvalue when you received it.

Example. Larry and Gina owned their home jointlybefore their divorce in 1978. That year, Gina received

Larry's interest in the home in settlement of her maritalsupport rights. Gina's basis in the interest received fromLarry is the part of the home's fair market valueproportionate to that interest. Her total basis in thehome is that part of the fair market value plus her ad-

justed basis in her own interest.

Property transferred in trust. If the transferor re-cognizes gain on property transferred in trust, as de-scribed earlier under Transfers in trust, the trust's basisin the property is increased by the recognized gain.

Example. Your spouse transfers property in trust,recognizing a $4,000 gain. Your spouse's adjusted ba-sis in the property was $1,000. The trust's basis in theproperty is $5,000 ($1,000 + $4,000).

Gift Tax on Property SettlementsThe federal gift tax does not apply to most transfers ofproperty between spouses, or between former spousesbecause of divorce. The transfers usually qualify for oneor more of the exceptions explained in this discussion.However, if your transfer of property does not qualifyfor an exception, or qualifies only in part, you must re-port it on a gift tax return. See Gift Tax Return, later.

For more information about the federal gift tax, getPublication 950, Intr

Documents

US Internal Revenue Service: p504--2000