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Explaining how alimony is affected by tax reform

The alimony deduction will be affected by tax reform. What does this mean for you as a recipient of alimony? What does it mean for you as the payor of alimony? There are some very important items you need to know regarding tax reform and how it affects your ability to deduct alimony on your tax return. We will take a look at the requirements in today's post so you know if you are eligible to list the payments as a deduction in California.

The requirements prior to tax reform for deducting alimony on a tax return are as follows:

  • The spouses cannot file a joint return
  • The payment must be made in cash form, which includes checks and money orders
  • The payment has been made to a current or former spouse and is part of a divorce or separation agreement
  • The aforementioned agreement does not name the payment as not being alimony
  • The spouses cannot be living in the same household when the payments are made
  • There is no liability present, either in property or cash, to make the payments after the death of the spouse receiving the payments
  • The payment cannot be used as a settlement on property or as child support

Once the new tax law goes into effect, these requirements will be tossed. No longer will the payors of alimony payments be able to deduct those payments on their tax returns. At the same time, the recipients of the payments will not be taxed as income. The law will govern any divorces or separation agreements that go into effect after December 31, 2018.

Deducting alimony on your yearly tax return just got a little more difficult for taxpayers across the country due to tax reform known as the Tax Cuts and Jobs Act.

Source: CPA Practice Advisor, "Divorce: What Tax Reform Means for Alimony Deduction," May 31, 2018

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