If your alimony payments decrease or terminate during the first 3 calendar years, you may be subject to the recapture rule. If you are subject to this rule, you have to include in income in the third year part of the alimony payments you previously deducted. Your spouse can deduct in the third year part of the alimony payments previously included in income.

The 3-year period starts with the first calendar year you make a payment qualifying as alimony under a decree of divorce or separate maintenance, or a written separation agreement. Do not include any time in which payments were being made under temporary support orders. The second and third years are the next 2 calendar years, whether or not payments are made during those years.

The reasons for a reduction or termination of alimony payments that can require a recapture include:

• A failure to make timely payments,
• A change in your divorce or separation instrument,
• A reduction in your spouse's support needs, or
• A reduction in your ability to provide support.

When to apply the recapture rule. You are subject to the recapture rule in the third year if the alimony you pay in either the second year or the third year decreases by more than $15,000 from the prior year.

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

1. Payments made under a temporary support order.
2. Payments required over a period of at least 3 calendar years of a fixed part of your income from a business or property, or from compensation for employment or self-employment.
3. Payments that decrease because of the death of either spouse or the remarriage of the spouse receiving the payments.

Figuring the recapture. There is an example of how to figure recaptured alimony and a blank worksheet for your use in Publication 504.

Including the recapture in income. If you must include a recapture amount in income, show it on Form 1040, line 11 ("Alimony received"). Cross out "received" and write "recapture." On the dotted line next to the amount, enter your spouse's last name and social security number.

Deducting the recapture. If you can deduct a recapture amount, show it on Form 1040, line 31a ("Alimony paid"). Cross out "paid" and write "recapture." In the space provided, enter your spouse's social security number.

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