Until this year, many divorcees had been enjoying the benefits of an alimony tax deduction. For more than 70 years, the deduction allowed the payer to deduct paid-out alimony on their taxes, which often helped ease the financial burden of these payments. Recipients, who are typically in a lower tax bracket, received the supplemental income with a slight tax hit.
Under a new law that went in effect this January, people who pay alimony will no longer be able to deduct payments on their tax returns, which will increase their taxable income. Conversely, the alimony recipient will no longer need to claim these payments as taxable income.
Good news for some
The new law will grandfather in couples who have an existing alimony arrangement or began their divorce proceedings before January 1, 2019. If you reached your alimony agreement in 2018 or earlier, you may still be able to deduct their alimony payments from their taxes even if the agreement goes into effect in 2019. The same goes for couples seeking to modify their alimony agreement in 2019 and beyond; you will pay alimony only under the law in effect at the time the agreement was made.
Unsure if you’re affected?
If you have any questions about your agreement or are planning on beginning the divorce process in 2019, you may want to consult with an attorney. The recent alimony law is new to everyone, and legal guidance can help clarify what it means for you.