Is alimony still deductible by payers and taxable to recipients? It depends. There is some confusion around recent tax law changes, but the prior rules generally remain in effect for divorce and separation agreements entered into before 2019.
Old alimony rules vs. new rules
Previously, someone paying alimony could deduct payments made under a legally-binding divorce or separation decree, and the recipient was required to report the corresponding amount as taxable income, if these main requirements were met:
However, the new law repeals the deduction, and inclusion in taxable income, for alimony paid under an agreement executed after 2018. Accordingly, the prior rules continue to apply to pre-2019 agreements.
If you paid alimony in 2018, it's deductible on your 2018 return. Going forward, deductions can still be claimed for years in which payments are made under the agreement. Similarly, alimony recipients continue to owe tax on payments on 2018 returns and possibly beyond.
What happens if an existing agreement is modified in 2019 or later? The alimony generally remains deductible by the payer and taxable to the recipient. However, if the modifications expressly state that the new rules apply, future alimony is no longer deductible to the payer and taxable to the recipient.
This can be important information for bargaining in separation and divorce negotiations. Make sure that modifications to an agreement reflect the intent of the parties.
"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area.
Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at email@example.com.
For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.
Monarch Accounting Group, Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527
Phone (630) 320-3720
To better serve our clients and friends, to keep you up-to-date and informed, our blog is a resource for tax tips and overall accounting related articles. We hope you find this useful!