Are you thinking of getting a divorce? Before you jump and do anything, I would recommend that you read this blog to know the eight important things about the 2018 alimony tax changes.
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
Here are eight things you need to know about the 2018 alimony tax changes:
- Effective date – any divorce agreement executed after 12/31/18.
- New 2018 tax law – alimony payments are no longer deductible and alimony income is no longer included as income.
- Grandfathered payments – any alimony paid based on a divorce agreement in place on or before 12/31/18 remains deductible by the payor spouse and included as income for the recipient spouse
- Modified agreements – the old tax rule still applies unless the agreement expressly states that the new 2018 tax law applies. That means, that the modified agreement will lose its grandfathered payments and status.
- Timing – if you are thinking of filing for a divorce in 2018, it is very important to time the divorce/alimony settlement before 12/31/18.
- State conformity – determine if your resident state agrees with the federal law. For example, in California, they still allow the alimony deduction and inclusion in income.
- Tax strategy – make sure that you account for the federal and state tax effect of the alimony payments or receipts when you are working with your attorney.
- Reason for change – Congress called the alimony deduction a “divorce subsidy”. They argued that divorced couples can benefit more compared to a married couple. So they want to treat alimony as a non-deductible child support. The Joint Committee on Taxation estimates that this tax change will add almost $7 billion in tax revenues over ten years. Wow!
To recap, make sure you remember these eight important things in case you are getting a divorce.
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Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.