The Tax Cuts and Jobs Act eliminates federal income tax deductions for alimony payments required under divorce or separation instruments executed after December 31, 2018.
What does this mean?
Currently, a person paying alimony receives a tax deduction on his or her federal income taxes and the recipient claims the alimony payments as income on his or her federal income taxes if the requirements set forth in 26 US Code Section 71 are met and the order establishing alimony does not state otherwise. Starting with Florida divorces finalized by the court after December 31, 2018, that require payment of alimony, the alimony payments will not be considered income to the alimony recipient for Federal Tax Purposes, and will not be deductible from gross income by the alimony payor for Federal Income Tax purposes. This means the alimony payor will not be able to deduct the alimony payments from gross income on Federal Tax Returns, and the alimony recipient will not pay Federal Income tax on this alimony. This will likely result in the alimony payor having to pay a higher amount of federal income tax, and the alimony recipient will likely have to pay a lesser amount of federal income tax.
Who does this affect?
Any person who is ordered to pay alimony, or who is entitled to receive alimony, pursuant to a Florida divorce finalized by the court after December 31, 2018.
What do I need to do?
To be able to deduct alimony payments from gross income under 26 US Code Section 71, after December 31, 2018, the Florida court must enter a Final Judgment of Dissolution of Marriage incorporating your requirement to pay alimony before January 1, 2019. Executing a settlement agreement – even if it resolves all of the issues in your divorce and specifies your alimony obligation – is not enough to avoid losing the ability to deduct the alimony from your gross income for Federal Income Tax purposes.
Include a provision in your settlement agreement that states all future modifications of the alimony obligation will retain the taxability provisions of the original alimony obligation.
If you have an Prenuptial or Postnuptial Agreement, review the alimony provisions and consider the effect of losing the ability to deduct any required alimony payments from gross income for Federal Income Tax purposes.