With the recent passage of the new tax law, there is a good chance you will be in a new tax bracket when you file your 2018 taxes next year. However, if you’ve already filed or are considering filing for divorce in 2018, there is a less talked about provision in the new tax bill that you need to take note of: the alimony tax deduction has been eliminated, effective December 31, 2018.
Under current law, the tax code permits the payor (the person paying alimony) to deduct the alimony payments while counting as taxable income to the recipient. It has been in effect for the past 75 years, so the new law represents a significant departure from how alimony has been treated in the tax code.
The alimony deduction repeal would ONLY affect divorces carried out after December 31, 2018 and is prospective only, so it would not affect anyone already paying alimony or those who get divorced or sign a property settlement agreement before 2019.
If you have recently filed for or are considering filing for divorce, this new change could directly affect you. If you are facing paying an alimony obligation, you may feel an increased desire to file now so you can take advantage of the tax benefits of alimony before it disappears. If you are a potential recipient of alimony, you may wish to wait until after the 2018 calendar year has concluded to avoid the taxable income. The new tax law also directly affects child support. Child support is based upon parties’ combined net incomes, so changes such as property tax and state and local income taxes deductions capped at $10,0000 per year will decrease the availability of income for support. The increase in the standard deduction for single filers from $6,500 to $12,000 and joint filers from $13,000 to $24,000 could also come into play and have an effect when calculating child support.
If you are contemplating divorce, perhaps the change to the alimony deduction is a reason to file now while the alimony deduction is still available. It is always recommended that you consult with experienced and reputable counsel to understand how the new tax law can affect your divorce in 2018. Contact the Law Offices of James T. Rosenberg, Esquire today at (856) 439-0040 to schedule a consultation before it’s too late to take advantage of the current alimony tax deduction.