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Posted by Elliot Kravitz, ATP

Alimony; Payments, Adjustments, and Benefits

Alimony; Payments, Adjustments, and Benefits

Over the last 70 years, child support payments have been deductible by the payer and taxed as income for the recipient (note that significant rule changes occurred in 1984). The previous pension had been deducted earlier on the Form 1040 home page as an "above the line" deduction from line 31a (black arrow), which means that it was available as a deduction even for taxpayers who did not specify. And it was taxable for the recipient, which can be reported on line 11 (the orange arrow).

All this has changed in the TCJA. From now on, Alimony will no longer be deductible in new contracts signed as of January 1, 2019. This also means that they will not be taxable for the beneficiary. However, if you have made a prior agreement, the tax treatment will be maintained if you do not change it after January 1, 2019, by making explicit reference to the new law.

Taxpayers will also need to think a bit more about where to report their child support payments starting in fiscal 2018 (the return must be completed by 2019). Do have it in mind that these new terms were created to exceed performance. The pension has been transferred to Appendix 1, Adjustment of Revenues, and Additional Benefits. Alimony payments are always deducted on line 31a (red circle), while Alimony income is always shown on line 11 (green circle), only for a new program:

To be considered for Alimony for the federal tax deduction, you must either be under separate order or divorced. You cannot live in the same house as your husband (former spouse) when you make payments (unless you comply with a court order) and you cannot claim child support for one year during from which you file a statement. 

Child support as some chose to call it should be "to the former spouse or for the spouse by an instrument of divorce or separation." This includes an official divorce decree with mandatory alimony, a written separation agreement that imposes such payments or any other form of a court order requiring the support of the spouse. The convention or ordinance must not be permanent: temporary decrees, interlocutory decrees (not final), pending pension decrees (pending a final decree "during the procedure").

Alimony payments must be in cash or equivalent, such as a check or money order.

The obligation to pay for Alimony is not voluntary. You and the Internal Revenue Service may have a different understanding of what constitutes a "voluntary." Here's a tip: if you have an order or a formal agreement, it's not voluntary. But if there is an agreement, you feel morally compelled to pay because you probably have destroyed things or your ex-spouse is asking for something to pay and your most likely want to keep him/her quiet, volunteer and is not considered Alimony.

Payments do not have to be child benefits. Child support is financially neutral: it is neither tax deductible nor taxed as income for the recipient. The characterization of payments does not always depend on you: in the event of delay with alimony, the Internal Revenue Service will characterize the payments made to your spouse, and your contract. If you are a payer, you lose your deduction.

Payments treated as assets are not considered to be alimony. The same goes for payments or property maintenance services, such as mortgage payments on a house or other property. For example, if your ex can live without paying rent in a house for which you are responsible (insurance, property taxes, mortgages, and repairs), these payments do not constitute alimony. And the amount of rent that your ex did not pay? Not alimony. What happens to an invoice to pay the obligation to liquidate the property? It's not Alimony. Again, ownership ratings are not considered as alimony, either by installments or a one-time payment. Promises of payment, invoices, or regular payment plans do not change.

Even payments that are part of your spouse's average property income are not considered support payments. This could come into play if you live in a community-owned state, such as Idaho, Arizona, California, New Mexico, Louisiana, and the rest. Federal law determines whether your income is a separate income or community income in those states.

Death changes everything. To be considered as alimony, you should have no obligation to make payments (money or property) after the death of your wife/husband or former spouse.

It is only alimony if the instrument of divorce or separation does not say that it is not alimony. I know, it's a double negative. But if your agreement or other agreement negotiated in the divorce has been executed, provided it is not treated as alimony, you cannot treat it as alimony, even if you think that should be the case.

Elliot Kravitz, ATP
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