Legal Blog
The Weekly Scenario: Alimony Payments Affected by Tax Cuts and Jobs Act?
Question: How did TCJA (Tax Cuts and Jobs Act) affect alimony payments? What other considerations might there be?
Prior to TCJA (since 1942) alimony was considered taxable income to the recipient spouse and a tax deduction to the paying spouse. The deduction was not an itemized deduction; rather, it could be taken ‘above the line’ (for the accountants). New rules now apply to payments made pursuant to a divorce that is executed after 12/31/2018 or modified after such date (so long as the modification opts into the new tax treatment for alimony payments).
Reversing who is responsible for the tax on alimony will have other implications.
For example, under the ‘old’ rules, alimony was deductible only if it was paid in cash. Now alimony can be funded with other types of property (stocks, real estate, or assets in a qualified retirement plan account subject to a QDRO). The ability to fund a lump alimony payment with an asset other than cash could be beneficial to one or both spouses.
Taking another example, for alimony recipients, under the old rules since payments received were taxable, the recipient could use the ‘earned income’ to contribute to an IRA. Now payments are not considered earned income which will affect the ability to fund an IRA.
As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or .
ABOUT STEVE SHANE
Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.
ABOUT OFFIT KURMAN
Offit Kurman is one of the fastest-growing, full-service law firms in the Mid-Atlantic region. With over 170 attorneys offering a comprehensive range of services in virtually every legal category, the firm is well positioned to meet the needs of dynamic businesses and the people who own and operate them. Our twelve offices serve individual and corporate clients in the Virginia, Washington, DC, Maryland, Delaware, Pennsylvania, New Jersey, and New York City regions. At Offit Kurman, we are our clients’ most trusted legal advisors, professionals who help maximize and protect business value and personal wealth. In every interaction, we consistently maintain our clients’ confidence by remaining focused on furthering their objectives and achieving their goals in an efficient manner. Trust, knowledge, confidence—in a partner, that’s perfect.
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