BULLETIN: 2018 Trump Tax Cut & Deducting Spousal Maintenance Payments
I want to get out the word that a MAJOR change is about to take place under the new Trump tax law on how the IRS treats alimony payments to a former spouse. (Alimony is known as “spousal maintenance” in Minnesota.) For decades, alimony paid to a former spouse incident to divorce or legal separation was deductible by the payor (usually the husband) and reportable income to the recipient (usually the wife). This rule has been in place for over 60 years. As a result, the alimony was usually taxed at a much lower “bracket” or percentage by shifting income to the former spouse.
Effective with divorce decrees and marital agreements reached subsequent to 12/31/18, alimony is NO LONGER DEDUCTIBLE. The applicable tax statute allowing alimony to be deducted is repealed as of that date for new divorces. So, if you do know someone planning to divorce and hoping to deduct the alimony, you should urge them to act right away to make sure a divorce settlement can be finalized in 2018. Unfortunately, we expect to see a rush of cases at year end.
This new law does not change deductibility of alimony paid pursuant to EXISTING DIVORCE DECREES, but may impact those cases that return to court for a change in alimony. The repeal language is quite sparse and no doubt the IRS will eventually issue more guidance of some sort. Frankly, that guidance will likely be too late to help us in new contested divorce cases which often take well over a year to wind through the court system.