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It’s my annual Taxes A to Z series! This time in the style of the Tax Cuts and Jobs Act (TCJA). If you’re wondering if you can claim home office expenses or if you can deduct a loss of assets under the new law, you won’t want to miss a single letter.
A stands for maintenance.
For the past 70 years, alimony payments have been deductible by the payer and taxable as income by the recipient (it should be noted that there were some significant changes to the rules in 1984). Child support was previously deducted on the front page of Form 1040 as an “above the line” deduction on line 31a (black arrow), meaning it was also available as a deduction for taxpayers who did not provide detailed information. And it was taxable at the recipient, reportable on line 11 (orange arrow).
That all changed under the TCJA. Effective immediately, alimony payments are no longer deductible for new contracts signed on or after January 1, 2019. This also means that they are not taxable for the recipient. However, if you have an older contract, the tax treatment will remain the same unless you change the contract after January 1, 2019 by specifically referring to the new law.
Taxpayers will also need to do a little more digging to find out where to report child support payments beginning with tax year 2018 (the return you’re now filing in 2019). Remember the new schedules created to compensate for the not-quite-postcard-sized return (more on that here)? Alimony payments have been moved to Appendix 1, Additional Income and Income Adjustments (downloads as PDF). Child support payments will continue to be deducted on line 31a (red circle), while corresponding child support receipts will continue to be reported on line 11 (green circle), only on a new schedule:
To qualify as alimony for federal income tax withholding purposes, you must be divorced or under a separation decree. You may not live under the same roof as your spouse/ex-spouse when making the payments (unless you meet a court-ordered exception), nor can you claim alimony in a year in which you file a joint tax return with Submit to your spouse. soon ex-spouse.
Alimony payments must be made “to or for a spouse or ex-spouse under a deed of divorce or separation.” This includes an official divorce decree with mandatory child support payments, a written separation agreement mandating such payments, or any other type of court order obliging you to support your spouse. The settlement or order need not be permanent: restraining orders, restraining orders (not final), maintenance orders (pending a final order “during the proceeding”) apply.
Child support payments must be made in cash or a cash equivalent such as a check or money order.
The maintenance obligation must not be voluntary. The IRS and you may have different understandings of what “voluntarily” means. Here’s a tip: If you have a government order or agreement, this is not voluntary. But if you agree, you feel morally obligated to make payments because you screwed something up, or your ex is asking you to do something and just wants to shut him up, that’s voluntary and doesn’t count as alimony.
The payments cannot be child support. Child support is tax neutral: it is neither tax deductible for the payer nor taxable as income for the recipient. Characterizing payments isn’t always up to you: If you’re in arrears with child support, the IRS will characterize payments to your spouse/ex-spouse as child support and not alimony, regardless of what your agreement says. If you are the payer, it means you lose the deduction.
Payments deemed to be property adjustments are not considered maintenance. The same applies to payments or services to maintain your property, such as B. Mortgage payments for a house or other property. For example, if your ex can live rent-free in a house that you are responsible for maintaining (including paying mortgages, property taxes, insurance, and repairs), those payments are not child support payments. And the value of the rent your ex isn’t paying to live there? Neither does maintenance. What about a promissory note to settle an estate settlement obligation? Not alimony. Again, property settlements are not considered alimony, whether in a lump sum or in installments. Promises to pay, promissory notes or regular payment plans do not change that.
Payments that are part of your spouse’s joint property income are also not considered alimony. That could come into play if you live in a community state like Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin. State laws determine whether your income in those states is separate or joint income.
Death changes everything. To qualify for alimony, you must not be obligated to make any payment (in cash or through property) following the death of your spouse or ex-spouse.
It is only alimony if the divorce or separation certificate does not state that it is not alimony. I know it’s a double negative. But if your settlement or other agreement negotiated as part of the divorce was executed on the condition that it should not be treated as alimony, then you cannot treat it as alimony even if you think it should be case should be.
Further information on taxes from A to ZTM 2019 can be found here.
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I focus on tax law including tax planning and tax litigation matters. My goal is to help taxpayers stay compliant and stay out of trouble.
I have my JD and LL.M. in Taxation from Temple University School of Law in Philadelphia, PA. While attending law school, I interned in the IRS’s Estate and Gift Tax Attorneys Division and was involved in reviewing and auditing federal estate tax returns.
I started writing under the nickname Taxgirl years ago and love to make complicated information accessible to taxpayers and tax professionals.
I hate honors lists, but I have a few I’m particularly proud of, including the Philadelphia Business Journal “40 under 40” and being named one of the Global Tax 50 by the International Tax Review for my “tireless and passionate tax reporting.” .”
I enjoy traveling with my family and I spend a lot of time explaining to the kids why we can’t move to Europe this week.
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