A couple named Harriet and Walter were divorced in 2015. During their marriage t

Question

A couple named Harriet and Walter were divorced in 2015. During their marriage they owned a house together. Harriet continued to live in the house because of the poor state of the housing market in the town in which they live. At the end of 2015, Harriet and Walter decided to continue living in that same house together (not as a couple, just friends) until they can sell the house for a reasonable amount. Walter moved back in and occupied one side of the house and Harriet continued to live in the other side. They continued to live together in this manner for the entire year in 2016.

The terms of the divorce require Walter to pay Harriet $60,000 per year in alimony, which he paid as required.

Question: What is the impact of this $60,000 payment on Walter’s tax return for his 2016 F0rm 1040?

To answer this question, use the Internal Revenue Code. You may refer to a textbook but you may not base the answer on the textbook – you must reference the IRC section. What keywords did you use in your search to derive this answer?  

Explanation / Answer

As per IRS, an alimony paid by the person to his or her spouse is taxable in the hands of the spouse receiving it and is deductible from taxable income of the spouse paying it. However, for tax treatment it is necessary that such payment is considered to be alimony in the eyes of IRS. "As per topic number 452 - Alimony, a payment is alimony only if all the following requirements are met:

As per the point 5 in above quoted section, if both the persons are living in the same dwelling unit then payments made by one spouse to another is not considered to be alimony payment.

In the given question, Walter and Harriet lived in the same house in the year 2016 and therefore payment of $60,000 per year will not be considered as alimony. Such payments are not deductible in Walter's Form 1040

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