Alimony Rules Have Changed for Your 2019 Tax Return

With tax season in full swing, you might have noticed that the rules for alimony payments you received or paid in 2019 have changed.

There also seems to be a great deal of confusion about these changes. A better understanding of these new rules will prevent that dreaded letter from the IRS.

Pre-2019 Tax Rules for Alimony

If your legal separation or divorce became final in 2018 or before, the old tax rules for alimony still apply to you.

The previous tax laws stated that the receiver must claim alimony as income, and the payer was able to claim these payments as a deduction.

January 1, 2019, and Later

New rules for old divorces being amended in 2019 or if your divorce or separation was final in 2019, the recipient does not need to report the alimony as income, however, those who pay alimony may no longer deduct payments made.

The only exceptions for the payer which allowed for alimony to be deductible were if all the following conditions applied:

·         Payments must be made due to a divorce decree or legal separation, with a court decree of support or a written separation agreement. Payments made voluntarily cannot be deducted.

·         The divorce or separation agreement must say that the money is paid strictly for alimony.

·         Payments are made in cash, either directly to the former spouse or on behalf of the former spouse.

·         If payments should exceed $15,000 during the first or second year but are reduced in second and/or third-year b over $15,000, there can be a partial recapture.

·         The parties must live in separate residences.

·         The payer’s liability ends with the death of the recipient.

·         The parties cannot file a joint tax return.

How to Report Alimony Paid or Received

To help the IRS determine how alimony payments should be processed, you will need to fill out the information on Schedule 1 of Form 1040 or the 1040-SR.

·         If alimony payments are deductible, you must fill out form Schedule 1 for 1040 or 1040-SR. If the payer is taking the standard deduction,  and not itemizing deductions, you must still fill out the original date of the separation agreement or divorce, and the recipient’s Social Security number. There is a penalty for not filling out this form.

·         Recipients of taxable alimony must report the payments and enter the divorce or separation agreement date on the same Schedule 1 form. The recipient must give their Social Security number to their ex-spouse or face a fine.

Note that neither party needs to attach a copy of the separation agreement or final divorce decree to the tax return or Form 1.

Changes Regarding Legal Fees

For pre-2019 divorces and separation agreements, legal fees used to be deductible, however, this deduction has been suspended from 2018 through 2025.

Divorces and separation agreements finalized during 2019 or later, legal fees cannot be deducted by either party.

In short, alimony payments are no longer deductible for divorces finalized in 2019 and later tax year (with one exception listed above) and alimony received does not have to be reported as income.