The new tax law eliminates the deduction for alimony payments to an ex-spouse for divorce decrees entered after December 31st, 2018.
The paying spouse has traditionally been able to deduct alimony payments from his or her income when filing taxes. Correspondingly, the receiving spouse was required to claim alimony received as part of his or her income.
But going forward, for divorces entered after December 31st, 2018, the payor will not be able to deduct alimony payments and the payee will not claim the payments as income. Thus, the alimony will be taxed at the payor’s tax rate instead of the payee’s. The payor is typically in a higher income tax bracket than the payee.
A 2014 study by the Treasury Inspector General for the Tax Administration showed that about half of the tax filings for 2010 had a mismatch between the income received and the deduction claimed.
This raises the question: should a spouse expecting to receive alimony delay their divorce until 2019? This is a highly individualized decision that should be made based on a variety of different factors and in consultation with a professional advisor.
Other itemized deductions that will be reduced are the home mortgage interest deduction, and the deduction for state and local taxes. Beginning in 2018 interest on a home loan of up to $750,000 will be deductible, down from the current $1,000,000 limit. State and local income, sales and property taxes will be able to be deducted up to $10,000.
Under the new law the standard deduction will rise to $12,000 for individuals and $24,000 for married couples, nearly double what is has been in the past. This will have an effect on how many filers will itemize deductions, as opposed to taking the standard deduction.
This material should not be construed as legal advice for any particular fact situation, but is intended for general informational purposes only. For advice specific to any individual situation, an experienced attorney should be contacted.
When it comes the family law and social security disability, each client and case is different. It is also important to select an attorney with the experience, skills and professionalism required to address your legal issues. To learn more, contact the Salt Lake City law offices of Melvin A. Cook and schedule an initial consultation to discuss your case.