February 1, 2019 • Gil Charney
Under tax reform, an ex-spouse who pays alimony can no longer deduct the alimony payments, and the ex-spouse who receives the payments no longer has to count them in income. This rule applies to:
- Divorce and separation agreements entered into after December 31, 2018, and
- Previous divorce and separation agreements that are amended after December 31, 2018, but only if the amendment specifies that the new law applies.
This means that if your divorce decree became final by December 31, 2018, the tax reform will have no impact on your support and there will be no changes for you. If you are the one paying the child support, you can still deduct it. If you are the recipient of alimony, you must still report it as gross income on your tax return.
Tax Reform, Alimony, and Considerations for Older Divorce Judgments
If you amend your forgiveness any time after 2018, the old rules will continue to apply unless you add an amendment that specifically states that Section 11051 of the Tax Cuts and Jobs Act (TCJA) applies.
Why do you want to adopt tax reform rules so that alimony payments are no longer deductible or taxable? It may be that you think that the deduction is not so important for one of you and that the tax is an unjustified burden for the other. This is something that you, your former spouse, and your respective attorneys will need to discuss.
Remember, if you amend your decree but do not reference Section 11051 of the TCJA, everything will remain as it was. And one more thing: You can't get one person to get a deduction while the other doesn't pay taxes!
The option to apply (or not) the new law only applies to people whose decrees or agreements were in force before 2019. From January 1, 2019, any new decrees or separation agreements will automatically fall under the new law.
TCJA, Alimony and Beyond
The TCJA made no changes to the definition of alimony for tax purposes or to the legal definition of a divorce or separation agreement. For example, property settlements are not maintenance payments. There are also no child support payments. For a complete explanation and list, see the Alimony section of the IRS Pub. 504, Divorced or Separated Persons.
Another important aspect of a divorce is the question of who is entitled to the children. A divorce decree typically states that one parent is the custodial parent and the other is the non-custodial parent. Even if the decree specifies that the parents have joint legal custody, under tax law and regulations the custodial parent is the parent with whom the child spends the most nights per year, even if just one more night than the other parent .
The custodial parent may sign a release (Form 8832) to transfer the child's release to the noncustodial parent. In the past, this meant that the non-custodial parent could claim the tax exemption and, if the child was under 17, the child tax credit. Under the TCJA, Form 8332 is still called an exemption release, but the exemption is now $0. Despite this, things still work the same way. If you are the one removing your child's tax exemption, your spouse can still claim the child tax credit, which is now up to $2,000. If your child is 17 or older before the end of the year, your spouse will receive the new $500 other dependent credit.
In any case, as under prior law and regardless of what your decree says, the 8332 release is required in order for the noncustodial parent to receive these tax benefits associated with the child. If you are unsure about what is in your decree or how it works, you should contact your attorney.
Looking for help understanding the alimony and tax reform changes for 2018?
The Tax Cuts and Jobs Act includes hundreds of changes that affect nearly every taxpayer. Visit our Tax Reform Center to learn more about how these changes could affect you.
If you're looking for personal assistance, visit a local tax office to schedule an appointment with an H&R Block tax professional.
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