I'm so confused about alimony recapture!!
The one mcq I found in my Wiley testbank does not = 1st + 2nd year recapture. It just has the 1st year as the answer.
Q: ITAX-0012
Tim and Nicole Wendler were divorced in 2007. Under the terms of their divorce decree, Tim paid alimony to Nicole at the rate of $60,000 in 2007 $25,000 in 2008, and nothing in 2009. What amount of alimony recapture must be included in Tim’s gross income for 2009?
A: $0
B: $10,000
C: $35,000
D: $37,500
Answer D is correct. Alimony recapture may occur if alimony payments sharply decline in the second and third years that payments are made. The payor must report the recaptured alimony as gross income in the third year, and the payee is allowed a deduction for the same amount. Recapture for the second year occurs to the extent that the alimony paid in the second year ($25,000) exceeds the third year alimony by more than $15,000 ($0 + $15,000), or $10,000. Recapture for the first year occurs to the extent that the alimony paid in the first year ($60,000) exceeds the average alimony paid in the second year (reduced by the recapture for that year) and third year by more than $15,000. In this case, recapture for the first year amounts to $37,500, computed as follows:
First year payment = $60,000
Second year payment = $15,000
Third year payment = $0
$15,000
÷ 2
(7,500) Average of second and third year payments
(15,000) Threshold
$37,500 Recapture for first year
I think it should be $47,500 but that's not a choice.
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