Can You Claim an Alimony Deduction on Your 2019 Taxes?

In December 2017, President Trump’s administration enacted the Tax Cuts and Jobs Act (TCJA). This tax reform ushered different changes to individuals, most notably the loss of alimony deduction.

According to the reform, alimony payments will fall under the new tax rules starting 2019. Fortunately, the new rules only applied to people who were deliberating a divorce starting Jan 1, 2019.

So, what does it mean for divorcees in 2018 and 2019? Well, in this post, we’ll guide you on how to handle your alimony payments when filing taxes.

Keep on reading to learn more!

The Previous Law

Before the tax reform, the payer deducted the alimony payment when filing taxes. On the other hand, the IRS taxed the recipient on the amount as income. However, if the payer doesn’t deduct the payment, the recipient won’t be taxed.

For pre-2019 alimony payments to be deductible, payers must meet certain time-honored requirements. If you meet those requirements, your payments will be written off of above-the-line on your federal income tax return.

This means payers do not need to itemize to enjoy the deduction. For divorce agreements executed before 2019, recipients must include their alimony payments in their taxable income.

What Happens to Alimony Deduction?

As from Jan. 1, 2019, the alimony deduction for payers stopped, bringing a decade long practice to an end. As such, those who file their divorce in 2019 are likely to pay thousands of dollars in income taxes.

On the other hand, alimony recipients will no longer need to include the payment in taxable income.

It’s also vital to note that agreements that were in effect before  Jan. 1, 2019, will not be affected by the new reform. However, if an agreement is modified after the specified date, then the TCJA law changes will apply to the modifications.

Divorcing individuals who wanted the pre-TCJA rules were advised to execute their divorce by Dec. 31, 2018.

For individuals who must pay alimony after divorcing in 2019, this change is going to be quite expensive. This is because the savings from alimony deduction were substantial.

Can You Still Get Deduction After 2018?

As noted before, the TCJA laws will not apply to people who are already paying or receiving alimony. Your payments will continue to be deductible after 2018. However, that will only change if you modify your divorce agreement in 2019.

As such, divorce lawyers are advising people with divorce agreements executed before Dec 31, 2018 to be very careful with the modifications they make. The law reform, though, directly affects divorce agreements made starting Jan 1, 2019.

But There Are Requirements for Deductible Alimony

The Internal Revenue Code and related regulations provide requirements that help to determine whether payments qualify as tax-deductible alimony or not. If you have a pre-2019 divorce agreement and you make alimony payments, you must meet the following requirements to be eligible for the deduction.

  • The payment must be made under a written divorce or separation decree
  • The payment must be to or on behalf of a spouse or ex-spouse
  • The divorce instrument can’t distinctly state that the payment is alimony
  • Divorced couples can’t live in the same house or file taxes jointly
  • All payments must be in cash or cash equivalent
  • You can’t classify the payment as child support
  • Your tax return must include your Social Security number
  • The alimony obligation must stop after the recipient dies

So, if you have a pre-2019 divorce agreement, be sure you understand these requirements when filing taxes. Fulfilling them will help you determine whether you’ll qualify for the deductions.

If you’re unsure about the requirements and your rights, be sure to involve a professional divorce attorney in the process for more information.

What About Alimony Recipients?

As an alimony payer, you also need to understand how TCJA laws affect your former spouse.

If you filed your divorce by Dec. 31, 2018, the recipient of your alimony payments would still claim the money as taxable income. For those who had agreements after Dec. 31, the alimony is no longer classified as taxable income.

This means those who delayed filing their divorce agreements until Jan 2019 received an incentive for doing so. This is because the alimony they will be receiving starting Jan 2019 will be tax-free.

However, if you had a divorce agreement before 2019, the rules of filing your taxes as a recipient remain unchanged. You’ll still have to prepare your 2018 return in 2019 just the way you’ve always done.

Form 1040 must indicate the full amount of the payment you received. Keep in mind that alimony includes separate maintenance—money you receive if you’re legally separated but not yet technically divorced.

You can’t report the money you receive as child support. It’s also not tax deductible.

What Are Your Options?

The law requires you to continue paying alimony as agreed with your spouse and legal professionals. If you stop making payments, your wages can be garnished up to 25 percent.

The Tax Cuts and Jobs Act does not just affect alimony payments. It affects everything involved in a divorce, including property ownership and how you claim your kids.

So, instead of opting for traditional alimony payments, you may want to consider other payment options. For example, if you and your spouse were worth $1 million at the time the divorce, you can choose to pay your spouse $500,000 in multiple payments over time.

You can also choose to make a large one-time payment as alimony. This option helps to eliminate future tensions between divorced spouses.

Final Thoughts

For those people who have divorce agreements that were filed by Dec. 31, 2018, you don’t need to worry about losing the pre-TCJA tax treatment—unless you want to modify your agreement to follow the new law.

For 2019 divorcees, be sure to take the time to understand how the TCJA tax changes affect your divorce and decisions. One certain point is that you’ll no longer enjoy the alimony deduction.

When looking for legal help, there are important questions to ask lawyers before hiring one. They should help you find one that best understands your situation and needs.

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