Does the deductibility of alimony payments depend on whether the legal separation or divorce occurred before or after the Tax Cuts and Jobs Act changes?
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Yes, the deductibility of alimony payments for federal income tax purposes depends on whether the divorce or legal separation instrument was executed before or after the changes made by the Tax Cuts and Jobs Act (TCJA), which took effect for instruments executed after December 31, 2018.
Key Legal Details:
1. Pre-TCJA Law (Divorce or Separation Instruments Executed on or Before December 31, 2018)
- Deductibility: Alimony or separate maintenance payments made under a divorce or separation instrument executed on or before December 31, 2018, are generally deductible by the payor spouse under IRC §215 and includible in the income of the recipient spouse under IRC §71, provided the payments meet the requirements of IRC §71(b) (e.g., paid in cash, not designated as non-deductible/non-includible, not members of the same household if legally separated, and liability ends at payee’s death).
- Modifications: If such an instrument is modified after December 31, 2018, the pre-TCJA rules continue to apply unless the modification expressly states that the TCJA amendments apply.
2. Post-TCJA Law (Divorce or Separation Instruments Executed After December 31, 2018)
- Deductibility: For divorce or separation instruments executed after December 31, 2018, alimony payments are not deductible by the payor and not includible in the income of the recipient. This is a permanent change under the TCJA.
- Modifications: If a pre-2019 instrument is modified after December 31, 2018, and the modification expressly provides that the TCJA amendments apply, then the new (non-deductible/non-includible) rules apply to payments made after the modification.
3. Special Considerations
- Private Letter Ruling Example: The IRS has confirmed in PLR 202426011 that payments made under a pre-2019 agreement, even if incorporated but not merged into a later divorce decree, retain their character as deductible/includible alimony unless the instrument is modified to expressly adopt the TCJA rules.
- Planning Tip: It is essential to confirm the date of the divorce or separation instrument and whether any modifications have expressly adopted the TCJA rules, as this determines the tax treatment of alimony payments.
4. Community Property States
- The same rules regarding deductibility and inclusion apply in community property states, but community property laws may affect the allocation of income and deductions if spouses file separately.
5. Summary Table:
6. Conclusion
The deductibility of alimony payments is determined by the date the divorce or separation instrument was executed and whether it was later modified to expressly adopt the TCJA rules. Payments under pre-2019 instruments (not so modified) remain deductible by the payor and includible by the recipient; payments under post-2018 instruments (or pre-2019 instruments expressly adopting the TCJA rules) are not deductible by the payor nor includible by the recipient.
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