What are the tax advantages and disadvantages of paying alimony?

Question

What are the tax advantages and disadvantages of paying alimony in a divorce rather than having a property settlement?

Answer 1

Property settlement has no tax effect to the parties involved. Alimony can be tax deductible to the payer and taxable income to the receiver depending on how it is written up. I've included a link to alimony to help.

Answer 2

Sorry that question has a 1000 different answers.

When you pay alimony you take it off you income and the other party pays it. When its a property settlement you only need to worry about taxes when the property is liquidated.

That is 101 in college. There are probably 1000 other reasons to do what you want to do. Call a finacial planner or an accountant.

Answer 3

If you're paying alimony, it comes right off of your income as an adjustment whether you itemize or not. You don't pay tax on the money, the recipient does.

There are no tax implications for a property settlement. It's just a division of the marital estate.

Answer 4

A payment that qualifies under tax law as alimony is deductible to the payer on their income tax (and must be reported by the recipient as taxable income) in the year paid. A property settlement isn't tax deductible or taxable income.

Answer 5

Escrow accounts pay the tax bill annually and increases in tax payments from year to year are paid back to the account over 12 months interest free. The drawback is the lost interest you could gain if you held the funds yourself in an interest bearing account. This requires discipline, which some people might not have. Most lenders require Tax escrows for loans over 80% loan to value. Lenders are required to hold those funds in a non interest bearing account with the exception of a few states. In the event you can earn interest on the account by state law, then they have to pay it to you. The percentages earned are nominal fo rhte most part. Texas is a non-interest bearing state.