Alimony Interest Treated As Alimony?

[AlimonyQuestion]

What is the name of your state (only U.S. law)? Massachusetts

A quick question for all of you knowledgeble folks

Recently a Massachusetts court found that I was incorreclty calculating and paying alimony to my ex-wife for the last 10 years. To not be in contempt, I paid a lump sum amount the next day. This is clearly identified as Alimony in arrears. So I know how to treat this from a tx perspective. Now the question. In addition I had to pay another significant lump sum that was identified as interest on the alimony in arrears. Is this amount also treated from a tax perspective as Alimony? (would love this answer to be yes ;-))

Thanks!

Mark

 

[Antigone*]

What is the name of your state (only U.S. law)? Massachusetts

A quick question for all of you knowledgeble folks

Recently a Massachusetts court found that I was incorreclty calculating and paying alimony to my ex-wife for the last 10 years. To not be in contempt, I paid a lump sum amount the next day. This is clearly identified as Alimony in arrears. So I know how to treat this from a tx perspective. Now the question. In addition I had to pay another significant lump sum that was identified as interest on the alimony in arrears. Is this amount also treated from a tax perspective as Alimony? (would love this answer to be yes ;-))

Thanks!

Mark

You paid INTEREST. The interest you paid on your alimony is not alimony. From a tax perspective it has to be viewed as interest. And the last time I checked interest on alimony was not tax deductible.

 

[LdiJ]

You paid INTEREST. The interest you paid on your alimony is not alimony. From a tax perspective it has to be viewed as interest. And the last time I checked interest on alimony was not tax deductible.

I am going to disagree...at least provisionally. I believe that the interest would be considered to be additional alimony for tax purposes...just as interest on child support is considered to be additional child support, and therefore is not taxable income to the recipient.

 

[Antigone*]

I am going to disagree...at least provisionally. I believe that the interest would be considered to be additional alimony for tax purposes...just as interest on child support is considered to be additional child support, and therefore is not taxable income to the recipient.

Child support is not tax deductible though whereas alimony is. Unless the interest payments qualify as alimony then they cannot be deducted.

I'd love to see in the code where interest = alimony. But then again, you're the tax professional.

 

[mistoffolees]

I am going to disagree...at least provisionally. I believe that the interest would be considered to be additional alimony for tax purposes...just as interest on child support is considered to be additional child support, and therefore is not taxable income to the recipient.

I suspect it's not deductible.

The logic:

1. For alimony to be deductible, it must meet certain requirements:
http://www.tba.org/alimony/Section4.pdf
One of those requirements is that it must be covered by the divorce decree. Since alimony interest is not in the decree, that may rule it out.

More importantly:

2. There is a general rule in IRS interest deductibility that says that if the interest is avoidable, it is not deductible:
(The following describes the general interpretation, although the particular case isn't really applicable)
Deductibility of deficiency interest. | North America > United States from AllBusiness.com
Since the interest was avoidable by simply paying the alimony when it was due, it may not be deductible.

3. Interest paid between spouses in a divorce is not deductible. Somewhat off target because this covers interest on property division rather than on alimony, but the principle is the same:
Deductibility of interest paid to former spouse. | Legal > Legal Services from AllBusiness.com

None of those leads to a firm conclusion, but they certainly raise a question as to whether the interest on alimony would be deductible. I would not deduct it without talking with a tax attorney.

 

[LdiJ]

Child support is not tax deductible though whereas alimony is. Unless the interest payments qualify as alimony then they cannot be deducted.

I'd love to see in the code where interest = alimony. But then again, you're the tax professional.

I did say provisionally. I do intend to do some further research on this.

However, I am nearly certain.

Well, a cursory search through RIA found me absolutely nothing at all either way. However, I did find something that stated that interest on alimony was taxable income to the recipient, as additional alimony. Therefore I am feeling even more confident that its also deductible as additional alimony.

 

[mistoffolees]

I did say provisionally. I do intend to do some further research on this.

However, I am nearly certain.

In particular, look up the definition of personal interest. I think you'll find that interest on unpaid alimony is personal interest and therefore not deductible.

 

[Proserpina]

Was there any resolution to this, LdiJ?

I'm curious, too.

 

[LdiJ]

Was there any resolution to this, LdiJ?

I'm curious, too.

I found absolutely nothing in RIA (a tax professional's version of Lexis-Nexis) other than the indication that alimony interest was taxable income to the recipient, as additional alimony.

However, here is my theory: Interest income is always (with the exception of child support) taxable income to the recipient. Interest paid (with the exception of consumer interest, which misto misnamed as personal interest) is always tax deductible. Personal interest can either be consumer interest which is not deductible, or other forms of interest that can be deductible.

That, combined with the fact that my research in RIA showed that alimony interest was taxable to the recipient as additional alimony, tells me that its also additional alimony to the payer, and therefore is tax deductible.

I also ran this by some of my colleagues at work yesterday and they all agreed with this position.

 

[mistoffolees]

I found absolutely nothing in RIA (a tax professional's version of Lexis-Nexis) other than the indication that alimony interest was taxable income to the recipient, as additional alimony.

However, here is my theory: Interest income is always (with the exception of child support) taxable income to the recipient. Interest paid (with the exception of consumer interest, which misto misnamed as personal interest) is always tax deductible. Personal interest can either be consumer interest which is not deductible, or other forms of interest that can be deductible.

That, combined with the fact that my research in RIA showed that alimony interest was taxable to the recipient as additional alimony, tells me that its also additional alimony to the payer, and therefore is tax deductible.

I also ran this by some of my colleagues at work yesterday and they all agreed with this position.

As usual, there's nothing but your assertion with no documentation to back it up.

Did you ever hear of providing quotes of relevant facts?

 

[Perky]

Interest paid (with the exception of consumer interest, which misto misnamed as personal interest) is always tax deductible. Personal interest can either be consumer interest which is not deductible, or other forms of interest that can be deductible.

According to this IRS publication, personal interest is not tax deductible. Or maybe you were referring to something else? I'm confused.

http://www.irs.gov/taxtopics/tc505.html

Types of interest you can deduct as itemized deductions on Form 1040, Schedule A include investment interest (limited to your net investment income) and qualified residence interest. You cannot deduct personal interest. Personal interest includes interest paid on a loan to purchase a car for personal use. Personal interest also includes credit card and installment interest incurred for personal expenses. Items you cannot deduct as interest include points (if you are a seller), service charges, credit investigation fees, and interest relating to tax–exempt income, such as interest to purchase or carry tax–exempt securities. For information on points, refer to Topic 504. For information on investment interest see Publication 17, Your Federal Income Tax.

 

[mistoffolees]

According to this IRS publication, personal interest is not tax deductible. Or maybe you were referring to something else? I'm confused.

Tax Topics - Topic 505 Interest Expense

Please don't confuse LD with the facts.

Interest paid (with the exception of consumer interest, which misto misnamed as personal interest) is always tax deductible. Personal interest can either be consumer interest which is not deductible, or other forms of interest that can be deductible.

Funny how:
1. You claim that the use of 'personal interest' is incorrect, but then you use it in the next sentence.

2. You claim that 'personal interest' is incorrect - yet the IRS uses the term:
Tax Topics - Topic 505 Interest Expense


Please go back to the mail room - people are waiting for their mail to be delivered.

 

[LdiJ]

According to this IRS publication, personal interest is not tax deductible. Or maybe you were referring to something else? I'm confused.

Tax Topics - Topic 505 Interest Expense

That's interesting and a change in wording from previous publications. However, I have to assume that by personal interest they are referring to consumer interest. That includes credit card interest, auto loan interest, etc.

There are forms of personal interest, specifically signature loans, that can be deductible depending on what you actually use the money for. That's why its alway been the norm to use the term "consumer interest".

 

[mistoffolees]

That's interesting and a change in wording from previous publications. However, I have to assume that by personal interest they are referring to consumer interest. That includes credit card interest, auto loan interest, etc.

There are forms of personal interest, specifically signature loans, that can be deductible depending on what you actually use the money for. That's why its alway been the norm to use the term "consumer interest".

So you were wrong when you said that I shouldn't use the term 'personal interest'. And now you're saying that the IRS is wrong because it has "ALWAYS" been the norm to say 'consumer interest'.

And I notice that you STILL haven't provided the evidence to back up your claim.

 

[LdiJ]

Please don't confuse LD with the facts.



Funny how:
1. You claim that the use of 'personal interest' is incorrect, but then you use it in the next sentence.

2. You claim that 'personal interest' is incorrect - yet the IRS uses the term:
Tax Topics - Topic 505 Interest Expense


Please go back to the mail room - people are waiting for their mail to be delivered.

I forgot, Misto is an expert on absolutely everything and anyone who disagrees with him even in the slightest must of course be ridiculed...and misquoted to back up that ridicule. I hope you don't treat your employees that way.