The Tax Cuts and Jobs Act of 2018 has a number of important implications for those who are newly divorced, separated or in the process of divorcing.
Perhaps the most critical change for those in that situation is that alimony payments are no longer deductible and those receiving alimony no longer have to declare that income. These significant and permanent changes apply only to those who executed a divorce after Dec. 31, 2018, or have a legal agreement that modifies their divorce, expressly stating that the TCJA amendment applies.
For those divorced prior to 2019, the law still allows the taxpayer paying alimony to deduct those payments. Under agreements executed before 12/31/18, the spouse receiving alimony must declare it as income when filing a tax return, according to tax experts. The income or payments can continue to be reported on Schedule 1, attached to Form 1040, “Additional Income and Adjustment to Income.”
In some cases, financial planners suggest it might be beneficial to voluntarily apply the new TCJA rules.
It may be well-advised for those involved in a divorce to seek professional advice with questions or concerns about these complex issues, as they can have long-lasting implications.
Also worth noting is that not all payments to an ex-spouse are considered alimony. In order to qualify as such, the payments must be part of the divorce agreement and must be in cash, not property. Additionally, the couple cannot be living together and can’t file a joint tax return, among other requirements.
Going through a divorce can lead to many questions and challenges. We are here to help with the financial ones. Please contact your tax advisor at Diamond & Associates, PC with any questions you may have.