The federal government recently passed the Tax Cuts and Jobs Act, a sweeping law that impacts many parts of the current tax code. While some Massachusetts residents may have concerns over what the law will do to their property taxes and how capital gains may be impacted, those contemplating divorce should be aware of one major change: alimony payments are no longer tax deductible.
Under the previous law, a person who paid alimony to their former spouse was able to write the payments off of their income tax assessment. On the flip side, the recipient spouse was required to declare the alimony payments as income and through this process the money paid was taxed once and the payer was able to reduce their income to prevent even bigger losses from their mandate to provide financial support to their ex-spouse.
Now, however, payers of alimony will not be able to deduct those sums from their taxes and recipients will no longer have to pay taxes on what they get as support from their former partners. Legal experts are beginning to see issues with this change, which will take effect for divorces that are completed after December 31, 2018.
The tax breaks allowed by the former system sometimes made the burden of paying alimony easier on the spouse bound to support their ex-spouse; without that benefit, negotiating alimony agreements may be more challenging. Additionally, losing this tax break may make divorce a more expensive process for couples and may discourage them from divorcing even though it is something that they want to do.
Source: cnbc.com, "Loss of alimony tax break in GOP bill may add to the financial pain of divorce," Annie Nova, Feb. 4, 2018