Most alimony payments are not tax deductible

 Posted on February 22, 2022 in Uncategorized

If you and your spouse have begun to discuss getting a divorce in Maryland, you may be surprised to learn that you cannot deduct alimony payments to your spouse on your income taxes. Similarly, if you receive alimony payments after your divorce, you do not have to declare the money as taxable income.

Tax Cuts and Jobs Act is responsible for the changes

While your close friend may talk about deducting his alimony payments, his divorce agreement had to have been finalized before 2019. The Tax Cuts and Jobs Act (TCJA) of 2017 changed the way alimony payments are classified for former spouses, indicating that alimony was no longer treated as taxable income or a deductible expense. Only agreements finalized prior to 2019 remain tax deductable or considered taxable income. Generally, the same holds true for agreements that were modified before 2019. However, if you had an agreement in place before 2019 and altered it afterward, the payments will not be deductible if the terms of the agreement have changed and you and your former spouse have indicated that the payments do not constitute deductible alimony or taxable income.

Changes to your divorce agreement

Note that if you consider changes to your divorce agreement, the TCJA may change your tax status. The spouse receiving alimony may want to take advantage of receiving untaxable income.

Any changes to a divorce agreement should always undergo careful scrutiny. Consulting a financial advisor about your tax consequences before re-entering divorce agreement negotiations can help give you a better picture of changing the document will help or hurt you. Make sure that you understand the implications before signing on the dotted line.