Spouse maintenance repayment after income tax was paid
My new wife cashed alimony checks for 18 months after we were married so her ex, filed a demand letter for repayment plus interest in the amount of $105K. We repaid the $105K but had also paid income taxes on the original amount of $89K in 2022. Is there a way to reduce taxable income or re-claim the tax that was paid under a repayment deduction or similar method?
Answers
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Yes, if you had to repay income that was included on an earlier year's tax return, you may be able to deduct the repayment as an "Other Itemized Deduction" on Schedule A (if you had to repay more than $3,000) or there's an option to claim a credit. It's best to calculate both methods to determine which is most advantageous.
Deduction method (only if you repaid more than $3,000): Enter the deduction for the claim or right in the itemized deduction portion of your tax return for the current year. Note the income tax calculated with this deduction included as part of your itemized deductions.
Credit method: Follow these steps to determine if the credit method is best:
- Calculate the tax for the year of repayment without including the repayment deduction. 2.
- Refigure your tax from the earlier year without including in income the amount you repaid in the year of repayment.
- Subtract the amount from Step 2 above from the tax calculated on your earlier year tax return that included the repaid amount. This is the amount of the credit
- Subtract the credit amount in Step 3 from the tax for the year of repayment figured without the repayment deduction.
For more information and details, please see IRS Publication 525
