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To prevent a property settlement from being disguised as alimony, a provision in the federal tax law requires that when large sums of alimony (over $15,000) are paid in the first or second year following the divorce, but significantly less is paid in the third year, a portion of the alimony deducted by the payer in the first two years is recaptured by being added back to the payor's taxable income in the third year. This has the effect of "recapturing" the lost tax for the IRS.
If this recapture rule applies, the spouse who received the alimony (and had initially been required to include it in income) is entitled to a corresponding deduction in the third year.
The rule does not apply to alimony paid under temporary support orders (i.e., before the final decree is issued) nor does it apply when the reason for the drop-off in alimony in the third year was that the recipient died or remarried, or that less alimony was paid because the amount of alimony was based on a fixed portion of the payor's income from a business, property, or other compensation.