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Alimony and Taxes in the Post-TCJA World


In divorces, an ex-spouse may be legally obligated to make payments to his or her former significant other. Payments often are substantial and have been locked into tax deductions for the payer — but that was before the Tax Cuts and Jobs Act came to pass. It used to be that bona fide alimony payments were deductible, and the recipient reported the money as taxable income. For divorce agreements executed in 2018 or earlier, the old rules still apply.

However, for payments made under agreements after 2018, dramatic changes have ensued.

  • The tax deduction for alimony payments is eliminated. 
  • Alimony recipients won't have to pay tax on alimony received.
  • If your agreement is modified after Dec. 31, 2018, and states that the new TCJA treatment applies, the new tax rules apply.

That last item is especially significant. As noted in the legal site Nolo, pre-2019 divorces are eligible to for conversion to the new rules to future payments, but this is not mandatory. "The modification must specifically state that the TCJA treatment of alimony payments (not deductible by the payer and not taxable income for the recipient) applies." In some situations, the new TCJA rules could benefit both ex-spouses, as when the recipient is now in a higher tax bracket than the payer-spouse.

Rules Under the Old System

Even for those operating under pre-TCJA rules, for a particular payment to qualify as deductible alimony for federal income tax purposes, it must meet a number of requirements, including:

  1. The payment must be made under a written decree of divorce, separate maintenance or separation. In other words, it has to have been written down.
  2. The payment must be to, or on behalf of, a spouse or an ex-spouse. Payments to another, such as an attorney, are fine if they're made under the divorce or separation agreement or at the written request of the spouse or ex-spouse.
  3. The divorce or separation instrument can't state that the payment isn't alimony because it isn't deductible by the payer or won't be included in the payee's gross income.
  4. After the divorce or legal separation, the ex-spouses can't live in the same household or file a joint tax return.
  5. Payments must be made in cash or a cash equivalent.
  6. Payments can't be classified as fixed or deemed child support. This is another tax situation, which is why it must be considered separately from alimony. 
  7. The obligation to make payments, other than payment of delinquent amounts, must cease if the recipient dies. State law applies if the divorce papers are unclear about whether payments must continue to the estate and eventually to beneficiaries of the estate. If, under state law, the payer must continue to make payments after the recipient's death, the payments can't be alimony. (This is a major reason why recipients lost their alimony deductions.)

This is just an introduction to a complex topic, and as you can see, there are a lot of pitfalls. A small mistake can cost thousands of dollars. Contact us if your proposed divorce agreement includes payments meant to be alimony or child support. We'll guide you to keep you from making an expensive tax mistake you'll have to live with for years, keeping in mind both federal laws and the rules in your state.

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Davis & Graves CPA, LLP
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Gresham, OR 97030
Office (503) 665-0173
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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