Alimony Deduction Loss and Trump’s Tax Reform: What Does It Mean?
There was a rush to nail down divorce deals by New Year’s Eve, 2018. Why? Because as of now, divorcees are helping to fund tax cuts for corporate America that were enacted by the 2017 Trump tax reform.
January 1, 2019
On January 1, 2019, alimony became ineligible for tax deductions by the spouse making those payments. Simultaneously, the recipient of “spousal maintenance” is no longer able to declare those payments as taxable income.
Ultimately, this provision shrinks the amount of money available for split households because taxes will rise substantially for those making alimony payments. Meanwhile, the spouse receiving the payments could see a windfall under the new rules because the payments are no longer taxable (as of January 1, 2019).
Legal professionals note that once the tax deduction is gone, there will be less money for the family unit. Fueling the rush to make a deal before New Year’s Eve was the uncertainty left by the tax law change that is now a reality. The guidelines do allow leeway for judges to consider a range of factors in deciding how much the higher-paid spouse will pay in alimony, including the impact of taxes on income, the marriage’s duration, and the earning potential of both parties.