New Tax Bill Guts Alimony Tax Deductions

Updated 12/28/2017

Under current law, alimony payments (also known as spousal maintenance​e) are tax deductible. In the recently approved bill – Tax Cuts and Jobs Act (H.R.1) – this provision is soon to be abolished; effectively removing the tax benefit for the payor. According to CBS, this would affect over 600,000 Americans, who together have saved over $12.6 billion in tax benefits.

The payee (person receiving alimony payments) will also be affected by the new tax bill. Prior to H.R.1 under IRS Sections 61(8) and 71, required alimony money be included in the payee’s income. Under the new law, the payee will no long be required to include those payments in their taxable income. This effectively shifts the tax burden from the payee to the payor. This change is bound to drastically affect future divorce negotiations.

For those considering divorce, or are currently undergoing negotiations, there is still time to be grandfathered into existing law that would allow for alimony deductions. The new law will apply to divorces executed after December 31, 2018 – which means, individuals have one year to be able to be grandfathered in. For divorcees seeking to modify their alimony agreement, they may retain their tax deduction, even if modification occurs after H.R.I takes effect (Dec. 31, 2018).

If you would like to talk to one of our family law attorneys about alimony or divorce, then request a free consultation by calling us at 303-688-0944.