Tax Prep & Planning

Is Alimony Tax Deductible?

It’s true… Around 50% of marriages end in divorce.

But how does this impact your taxes?

What’s alimony?

Some amounts paid to a spouse or former spouse under a divorce or separation agreement is referred to as alimony. In divorces, an ex-partner may become legally obligated to make alimony payments to the other partner.

Have things changed since tax reform?

Before the Tax Cuts and Jobs Act (TCJA), you could answer the question “Is alimony tax deductible” with a “yes”.

Alimony was deductible by the payer spouse, and the recipient spouse was required to include alimony payments in gross income.

Here’s what’s changed…

For divorce agreements made after Dec. 31, 2018, the payor spouse can’t deduct alimony and the recipient spouse no longer has to include alimony in gross income.  

There is no change to the deductibility of agreements executed before January 1, 2019. If earlier agreements are changed in any way, spouses have the option to follow the new law or continuing to follow the old.

What are the requirements of alimony?

A payment is alimony only if all the following requirements are met:

  • Spouses don’t file a joint return
  • Cash payments (including checks or money orders)
  • Payment is made under a divorce or separation instrument and  the agreement doesn’t designate the payment as not alimony;
  • Spouses aren’t members of the same household when the payment is made. (This requirement applies only if the spouses are legally separated under a decree of divorce or of separate maintenance.)
  • There’s no liability to make the payment (in cash or property) after the death of the recipient spouse
  • The payment isn’t treated as child support or a property settlement

What doesn’t qualify as alimony?

Not all payments made following a divorce are considered alimony. It doesn’t include:

  • Child support
  • Non-cash property settlements
  • Community property income
  • Payments to keep up personal property
  • Voluntary payments

If both alimony and child support payments are required under a taxpayer’s divorce or separation instrument executed before 2019, and the taxpayer pays less than the total required, the payments apply first to child support and then to alimony.

Should you still report alimony payments?

If your divorce was finalized after 2018, neither spouse needs to report alimony payments but divorces finalized prior to 2019 both spouses must continue reporting the payments.

Need assistance? Enlist the help of a tax professional now. Find an advisor nearest you.

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