Any idea why the alimony deduction will be eliminated for divorce agreements executed after December 31, 2018?
For every 100 tax returns on which there was an alimony deduction, only 19 returns reported receiving alimony. That disparity costs taxpayers $644 million per year.
Before the Tax Cuts and Jobs Act (TCJA) was enacted, payments that met the tax-law definition of alimony could always be deducted by the payer for federal income tax purposes. The recipient had to report the money as taxable income. This treatment continues under the new law for alimony payments made under divorce agreements reached before 2019.
Note: Child support payments, as well as most other payments pursuant to a divorce, were neither tax-deductible nor taxable.
Alimony Deductions After 2018
Alimony will no longer be deductible by the payer spouse and such payments will not be taxable to recipients. The changes generally apply to divorce and separation agreements executed after December 31, 2018 and prior agreements modified on January 1, 2019 and thereafter. Also, unlike most other TCJA provisions for individual taxpayers that are effective only for 2018 through 2025, these new rules are a permanent part of the tax code.
Tags: TaxTips, Tax, Income Tax, SanDiego, California, Alimony, TCJA