Internal Revenue Service
Revenue Ruling
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smRev. Rul. 62-39
1962-1 C.B. 17
Sec. 71
Sec. 163
Sec. 164
Sec. 215
IRS Headnote
Treatment, for Federal income tax purposes, of an alimony award partially allocated by the decree of absolute divorce for the payment of installments of principal and interest on a note secured by a deed of trust on a residence owned by the divorced parties as tenants in common and for the payment of taxes, insurance and utility expenses with respect to such property.
Revenue Ruling 58-52, C.B. 1958-1, 29, distinguished.
Full Text
Rev. Rul. 62-39
Advice has been requested with respect to the treatment, for Federal income tax purposes, of a portion of an alimony award which is allocated by the decree for payments of principal and interest due upon an indebtedness secured by a deed of trust on a residence owned by the divorced parties as tenants in common and for the payment of taxes, insurance and utility expenses with respect to such property.
Pursuant to a decree of absolute divorce, it was ordered that the husband pay the wife a specified amount per month as alimony. It was further ordered that out of the amount paid to the wife she must pay the installments of principal and interest due upon a note secured by a deed of trust upon a residence owned by the husband and wife as tenants in common and the insurance, real estate taxes and all utility charges with respect to the residence. Under the decree, the wife was granted exclusive possession and enjoyment of the residence as a home.
Section 71 of the Internal Revenue Code of 1954 provides, in effect, that a wife's gross income includes periodic payments received under a decree of divorce or of separate maintenance in discharge of a legal obligation which, because of the marital or family relationship, is imposed on or incurred by the husband under the decree or under a written instrument incident to such divorce or separation.
Section 215 of the Code provides, in part, that in the case of a husband described in section 71 of the Code, there shall be allowed as a deduction amounts includible under section 71 in the gross income of his wife, payment of which is made within the husband's taxable year.
Revenue Ruling 58-52, C.B. 1958-1, 29, as modified by Revenue Ruling 62-38, page 15, this Bulletin, holds, in part, that the portion of an alimony award allocated by the decree of limited divorce for payment by the wife of installments of principal and interest due upon a note secured by a deed of trust, which is a first lien upon a residence acquired jointly by the divorced parties as tenants by the entirety, together with insurance and taxes on such property, is not considered as a payment in the nature of alimony includible in the wife's gross income under section 71 of the Code and deductible by the husband under section 215 of the Cdde. The decree of limited divorce did not dissolve the tenancy by the entirety.
This position is based primarily upon the fact that in a tenancy by the entirety the husband retains a survivorship interest in the property. Thus, a tenancy by the entirety situation is analogous to the life insurance premium payment case where the husband pays premiums on a life insurance policy in which he retains valuable rights and which is not assigned to his former wife who is only a contingent beneficiary. In such case it is held that the premiums are neither includible in the gross income of the wife nor deductible by the husband. I.T. 4001, C.B. 1950-1, 27.
However, the instant case involves property held by divorced parties as tenants in common. Under a tenancy in common, there is no element of survivorship or contingency as between the parties since each has a separate and distinct claim to one-half of the property and the wife's one-half interest in the property is not subject to divestiture if she predeceases her spouse. Where the husband makes payments of principal, interest, taxes and insurance with respect to all of the property held as tenants in common, the wife realizes an economic benefit to the extent of the portion of the payments made by the husband applicable to her one-half ownership of the property since such payments increase her equity in such one-half interest. Thus, with respect to the wife's one-half of the property owned as tenants in common, the situation is analogous to the life insurance premium payment case where the husband pays the premiums on a life insurance policy absolutely assigned to his former wife who is the irrevocable beneficiary. In such case it is held that the premiums are includible in the gross income of the wife and are deductible by the husband. I.T. 4001. Revenue Ruling 58-52 is, therefore, clearly distinguishable from the instant case, because of the different types of estates involved.
Accordingly, it is held that the portion of the award in this case which is allocated to payments of principal, interest, insurance and taxes with respect to the residence owned as tenants in common is considered a payment in the nature of alimony to the extent of one-half of the amount of such payments. Therefore, one-half of the amount of the payments for such items is includible in the wife's gross income under section 71 of the Code and is deductible by the husband under section 215 of the Code, provided that the payments are to cover a period of more than 10 years from the date of the decree (or otherwise qualify as periodic payments). However, the one-half of the payments for interest and the one-half of the payments for taxes which are includible in the wife's gross income under section 71 of the Code are deductible by her under sections 163 and 164 of the Code, respectively, if she itemizes her deductions.
It is further held that the portion of the payments of principal, interest, insurance and taxes allocable to the husband's one-half ownership of the property does not constitute alimony. See James Parks Bradley, et ux. v. Commissioner , 30 T.C. 701 (1958). However, the one-half of the payments for interest and the one-half of the payments for taxes allocable to the husband's interest in the property are deductible by him under sections 163 and 164 of the Code, respectively, if he itemizes his deductions.
Regardless of the state of title of the property, payments for utilities are considered expenses of current enjoyment of the property. Accordingly, where the wife is in sole and exclusive possession of the property, utility charges paid by the husband are considered periodic payments, includible in her gross income under section 71 of the Code and deductible by him under section 215 of the Code.
Revenue Ruling 58-52, C.B. 1958-1, 29, is distinguished.