Experienced
Tax Accountant – The Tax Cuts and Jobs Act (the Act) has made changes to
the tax treatment of alimony that you will be interested in. These changes take
effect for divorce agreements and legal separation agreements executed after
2018.
Current
rules. Under the current rules, an individual who pays alimony or separate
maintenance may deduct an amount equal to the alimony or separate maintenance
payments paid during the year as an “above-the-line” deduction. (An
“above-the-line” deduction, i.e., a deduction that a taxpayer need not itemize
deductions to claim, is more valuable for the taxpayer than an itemized
deduction.)
And,
under current rules, alimony and separate maintenance payments are taxable to
the recipient spouse (includible in that spouse's gross income).
New
rules. Under the Act rules, there is no deduction for alimony for the payer.
Furthermore, alimony is not gross income to the recipient. So for divorces and
legal separations that are executed (i.e., that come into legal existence due
to a court order) after 2018, the alimony-paying spouse won't be able to deduct
the payments, and the alimony-receiving spouse doesn't include them in gross
income or pay federal income tax on them.
New rules
don't apply to existing divorces and separations. It's important to emphasize
that the current rules continue to apply to already-existing divorces and
separations, as well as divorces and separations that are executed before 2019.
Some
taxpayers may want the Act rules to apply to their existing divorce or
separation. Under a special rule, if taxpayers have an existing (pre-2019)
divorce or separation decree, and they have that agreement legally modified,
then the new rules don't apply to that modified decree, unless the modification
expressly provides that the Act rules are to apply. There may be situations
where applying the Act rules voluntarily is beneficial for the taxpayers, such
as a change in the income levels of the alimony payer or the alimony recipient.
If you
wish to discuss the impact of these rules on your particular situation, please
give me a call.
Very
truly yours,
Amare
Berhie, Senior Accountant
CFO Services http://youtu.be/EYJdQtbPZAI
(651)
300-4777
No comments:
Post a Comment