If you are a divorced California resident who pays spousal support to your ex-spouse, you may have heard that you can no longer deduct the annual amount of those payments from your federal income taxes. Before hastening to your attorney’s office, however, to see about getting a modification of your support order reducing your payments so as to make up for your lost deduction, take a deep breath. This new law does not apply to you. You can still deduct the amount of your payments not only this year, but also in the future. Likewise, your ex-spouse must continue to declare these spousal support payments as income and pay income tax on them.
As reported by MarketWatch, it is true that the Tax Cuts and Jobs Act that President Trump signed into law late last year does indeed eliminate the “alimony deduction.” It also eliminates the requirement that ex-spouses receiving alimony declare it as income. However, these provisions apply to those paying and receiving spousal support, a/k/a alimony, under a divorce decree or legal separation agreement finalized after Jan. 1, 2019. It does not apply to you if your divorce is already finalized. But what if it is not?
2018: the “divorce madhouse” year
Many divorce experts predict that 2018 will be a “wild year” for divorces. Why? Because on top of everything else that you and your spouse may be arguing about during your pending divorce, now you have the IRS to argue about, too.
If you will be paying spousal support once your divorce is finalized, it is in your best interests to get your divorce finalized this year so you will still qualify for the alimony deduction. Conversely, if you will be receiving spousal support once your divorce is finalized, it is in your best interests to delay finalization of your divorce until after Dec. 31, 2018, so you do not have to declare it as income. Obviously the two of you are at complete odds with each other through no fault of your own.
Whichever side of the coin you represent, 2018 may be an even more difficult year for you than you thought it would be. This is general information only and is not intended to provide legal advice.