The new tax bill was signed into law recently, and with it comes a slew of new changes that impact virtually everyone. Some tax experts have talked about how many of the deductions that have been set for years will be going away. Unfortunately, included in that category is the tax deduction for alimony payments.
Changes to Take Effect at the End of 2018
This means that starting for divorces occurring after December 31, 2018, the alimony payment tax deduction will be completely eliminated. Previously, the entire amount of what you paid for in alimony was deductible from your income. When the law takes effect, you will be taxed on that amount as well.
People Already Paying and Receiving Alimony Will Not Be Affected
The current rules still apply if you are already divorced and paying or receiving alimony. The rule ONLY affects people getting a divorce after December 31, 2018. Everyone else paying alimony can still deduct it from their reported income.
The New Rule May Complicate Divorce Settlements
The existing tax deduction for alimony helps take a significant bite out of expenses for the alimony payor. Removing the deduction may make alimony negotiations difficult because now the payor will be paying more out of pocket in taxes, while supporting his or her ex-spouse. This represents a tax burden and may in the long run lower alimony payments in general.
Payees will no longer have to report alimony as income, but still may take a hit in the form of a lower alimony figure.
Existing Prenuptial Agreements May Need to Be Revised
Some couples who have created a prenuptial agreement (perhaps agreeing in advance to alimony terms should it come to divorce) may need to revisit their agreements. Most alimony considerations assumed that the tax deduction would be in place, so it is important to recalculate.
Confused About What This Could Mean For You?
If you need to know more about the alimony deduction issue, contact Park Family Law. Whether you need an experienced mediator to amicably and efficiently settle your case or an aggressive litigator to get you the best result in court, Park Family Law can assist you every step of the way.