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.

advertisement
Tax Glossary

Amount realized

A statutory term used to figure your profit or loss on a sale or exchange. Generally, it is sales proceeds plus mortgages assumed or taken subject to, less transaction expenses, such as commissions and legal costs.

More terms