Alimony Deduction Loss and the 2017 Tax Reform: What Does This Mean?
There was a rush to nail down divorce deals by New Year’s Eve, 2018. Why? Because, as of now, the way alimony is handled for tax purposes has changed.
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 may shrink the amount of money available for split households because taxes will rise for those making alimony payments. Meanwhile, the spouse receiving the payments under the new rules may see a windfall because the payments are no longer taxable (as of January 1, 2019).
Legal professionals note that once the tax deduction is gone, there may be less net money available 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. Judges have the leeway 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.