The recent tax bill introduced in the House of Representatives includes a provision to eliminate the tax deduction for alimony payments effective January 1, 2018. If passed, the alimony deduction will not be available for all divorce judgments, settlement agreements, and modification orders entered beginning January 1, 2018. The current law allows the payor to deduct alimony payments from his or her income, so long as certain requirements are met.
So, what is a person to do who is either in the midst of a divorce or considering the reality of one, where alimony is an issue? First, a person should settle their case now in case the provision becomes law in the next few months as the effective date kicks in very quickly. Second, a person should not agree to a final resolution which allows the parties to stay married through the end of the year to take advantage of filing a joint income tax return for 2017. Third and finally, a party should not agree to equitable distribution payments described as alimony to afford the payor the tax deduction, because under the proposed bill, this option will be eliminated.
Although the Senate needs to introduce its own version of the bill, which as of the writing of this blog has not yet occurred, and the differences between the bills from the two houses need to be reconciled, a party going through a divorce or contemplating it should be aware of this possible repeal of the tax deduction for alimony payments.