If your alimony payments decrease or end during the first 3 calendar years, you may be subject to the recapture rule. You  have to include in income in the third year part of the alimony payments you previously deducted. Your spouse can deduct in the third year part of the alimony payments he or she previously included in income.

The 3-year period starts with the first calendar year you make a payment qualifying as alimony under a decree of divorce or separate maintenance or a written separation agreement. The second and third years are the next 2 calendar years, whether or not payments are made during those years.

You are subject to the recapture rule in the third year if the alimony you pay in the third year decreases by more than $15,000 from the second year; or the alimony you pay in the second and third years decreases significantly from the alimony you pay in the first year. The formula is (2^nd yr + 3^rd yr)/2 less 1^st yr. The amount of decrease more than $15,000 will be recaptured.

There are few exemptions:

1. Payments made under a temporary support order.

2. Payments required over a period of at least 3 calendar years that vary because they are a fixed part of your income from a business or property, or from compensation for employment or self-employment.

3. Payments that decrease because of the death of either spouse or the remarriage of the spouse receiving the payments before the end of the third year.

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