Among the many changes made by the Tax Cuts and Jobs Act (TCJA) that was signed into law on December 22, 2017, is the elimination of the alimony deduction from the tax code through at least 2025 when the terms of the TCJA might potentially expire. Alimony was used to be a taxable income to the receiver which is the ex-spouse and for the payer, it was tax deductible.
It’s unfortunate that alimony payments are no longer deductible and the recipient no longer has to report it as income. However, the provision will not begin technically until 2019. You can still report any alimony you received and claim a deduction through Dec. 31, 2018.
Tax Planning and Divorce 2018 Tax Law
Under the terms of the TCJA, the date of your divorce decree or agreement is pivotal. If you were divorced at any time in 2018 or earlier, you’ll have to deal with the old rules that apply for divorce but if your divorce is finalized on Jan. 2, 2019, the new rules will apply.
Any decree or divorce agreement entered before Jan. 2, 2019 can still specifically be modified to adopt the terms of the TCJA but both ex-spouses will be required to provide a mutual consent.
You may have to pay alimony and will want to negotiate your divorce accordingly if your proceedings will be finalized in 2018. For alimony paid in 2019, no tax deduction will be taken.
How to report the alimony you’ve received?
The rules for reporting the income still hasn’t changed from previous years assuming your divorce is finalized prior to the end of 2018. They still apply when you get your 2018 return ready in 2019.
Using Form 1040, you are required to enter the full amount of any alimony you received. If you’re separated legally but not yet technically divorced, you receive an alimony income which is also known as “separate maintenance” for tax purposes. The payments received under the terms of a temporary support order that might be in place is not included while your divorce is pending.
Any amounts you receive for child support does not have to be reported since child support is considered a non-taxable event. It will be shown on your federal tax return and the parent making the payments is not allowed to claim it as a tax deduction.
What is the exception to the rule?
If your ex-spouse doesn’t claim a tax deduction for the payments he made, there’s no need for you to report alimony received as income. The only thing the IRS cares about is that someone pays taxes on this money. You will have to do it if your ex-spouse isn’t doing so. You cannot claim it as income yourself if your ex does include it in his taxable income.
Otherwise, your overall taxable income includes your alimony payments at least through 2018. The IRS will tell you to accept it tax-free after that and your ex will have to deal with the taxes as he is the one who earned it in the first place.
How to report alimony you’ve paid?
You have to report the total amount of paid alimony or separate maintenance to your ex-spouse on Form 1040 as well as your ex-spouse’s Social Security number. The IRS will be able to determine if it was declared as income through doing it and will let them know who received the money.
If you can’t find it on previous year’s jointly-filed returns or other documents because he or she won’t give you the number, don’t worry. Your ex will be charged by the IRS a penalty of $50 for not supply the number to you.
The alimony you claimed will be considered as an “above the line” deduction. Claiming it doesn’t require you to itemize your deductions. You have two choices: claim both the alimony deduction and the standard deduction or claim it and itemize other deductions.
What are the requirements to deduct alimony payments?
There is a list of requirements and rules you need to follow in order to deduct alimony you’ve paid. They are the following:
- You are not allowed to file a joint tax return with your spouse so if you’re planning to do it, you’re wasting your time. This is because your divorce isn’t final yet.
- Pay alimony in cash including checks or money orders. You cannot deduct property or asset in lieu of alimony since this is a property settlement according to the IRS.
- The payment must be given to your or on behalf of your spouse or former spouse such as if your divorce or separate maintenance decree entails that you must make her mortgage payments for her as a form of alimony.
- Your divorce decree, separate maintenance decree, or written separation agreement must only state that the payment is an alimony nothing else.
When you’re making payments, you and your ex cannot live in the same home.
- It’s ideal that your divorce decree or separate maintenance agreement should clearly state that you have no liability to keep on making payments after your former spouse dies.