Is maintenance deductible or not? It depends

If you get divorced, there may be an unpleasant tax surprise when you file your tax return: you cannot deduct alimony payments that you pay as part of the divorce decree. However, if you have alimony payments due, you do not need to report those payments as taxable income. These corresponding tax regulations were incorporated into the Tax Cuts and Jobs Act (TCJA), which was passed at the end of 2017.

However, you may still be able to write off alimony payments made under an ordinance that went into effect before 2019. These deductions are particularly valuable to alimony payers because they are claimed “above the line” and reduce Adjusted Gross Income (AGI) for other tax purposes.

Let’s take a closer look at the rules. Before the TCJA, you could deduct alimony paid pursuant to a divorce or separation agreement if certain conditions were met while the alimony received was treated as taxable income. In contrast, alimony payments were neither tax deductible for the payer nor taxable for the recipient.

The IRS has established the following requirements for the treatment of child support payments as deductible.

  • The spouses do not fill out a joint declaration with each other.
  • Payments are made in cash (including checks or money orders).
  • Payments are made to or for a spouse or ex-spouse under a deed of divorce or separation.
  • The divorce or separation certificate does not designate the payment as alimony.
  • The spouses do not belong to the same household at the time of payment. (This requirement only applies if the spouses are legally separated by virtue of a divorce decree or a separate alimony decree.)
  • There is no obligation to make the payments (in cash or property) upon the death of the receiving spouse.
  • The payments are not treated as child support

Typically, characterizing payments as deductible or not was a negotiating tool during divorce proceedings. But now the TCJA is throwing a money key into these discussions.

Tax update: For divorce or separation deeds completed after 2018, the TCJA says alimony payments are no longer treated as a deductible expense or taxable income item. However, payments made under pre-2019 arrangements remain fully deductible by payers and taxable by recipients above the limit. In addition, if an agreement is amended before 2019, the tax consequences generally remain the same.

Note that if the terms of the agreement are modified and the parties determine that the payments are not deductible alimony or taxable income, alimony paid under an agreement that was made before 2019 and subsequently modified is not deductible.

Finally, note that the changes related to maintenance are permanent, unlike many other TCJA provisions for individuals, which are currently scheduled to expire after 2025. Keep this in mind as you iron out the details of a divorce.

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