Alimony Deduction Repealed

December 20, 2017

This is the fourth in our series Last Minute Actions for the New Tax Law.

But we were wrong! Reading too fast, we thought repeal of the alimony deduction took effect in 2018, but this change in the law is delayed until 2019. Many thanks to the good folks at Kiplinger for alerting us to our error. You have another year to get over all those horrible things your spouse did and reach agreement on a settlement that maximizes overall tax benefits.

For many years, the general rule has been that alimony is treated as a deduction to the person making the payment and income to the recipient. The 2017 tax law does away with this treatment for settlement agreements executed after 2017 2018. For settlement agreements executed in 2019 or later, alimony will be treated the same as child support: no deduction for the payer, no income to the recipient. Note that current law treatment can be beneficial to both parties, as it may be possible for the payer to make more generous payments when they’re deductible.

Repeal of the alimony deduction will eliminate an important tax planning tool. Divorcing parties will still be able to adjust tax consequences in other ways, such as transfer or division of retirement plans, and determining who will receive assets with the most tax basis.

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