Are alimony buyout payments tax-deductible?

Are alimony buyout payments tax-deductible?

by Dafna Meltzer, CPA | Jan 10, 2018

I'm planning to pay a lump sum for alimony in 2018. I reside in California. The divorce is not final until the settlement agreement is final. The divorce was initiated in January 2016, and since February 2016 I have been paying temporary spousal support. Upon agreement, the temporary spousal support will be terminated and my ex-spouse will receive the lump sum. The IRS publication is not clear regarding one lump sum of payment, or at least I'm not able to research it. If I do meet the IRS requirements for alimony payment, does my lump sum become tax-deductible? Also, would it be more beneficial taxwise if I continue with the monthly payments instead? Finally, are there new federal tax reform rules that apply to my situation?

The new rules in the 2017 tax law apply to divorce agreements entered into after Dec. 31, 2018. They should not affect this particular case.

The Code is silent as to whether alimony must be in installments. My reading is that as long as the payment is specifically listed as "alimony" in the divorce agreement, and both parties agree that it is deductible/taxable to the respective parties, it will be so.

I suggest you contact a CPA in California to help you with how your state laws would affect your financial situation.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Dafna Meltzer, CPA, is with Meltzer & Meltzer CPAs in Elkins Park, Pa.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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