Repeal of Alimony Deductions for Paying Spouse via the Tax Cuts and Jobs Act

November 3, 2017

The House Ways and Means Committee Chairman Kevin Brady (R-TX) released the proposed Tax Cuts and Jobs Act. This bill details the various proposed changes to overhaul the Internal Revenue Code. However a few key changes may influence divorce negotiations and should be discussed with clients that are closer to finalizing their divorces. Although these are proposed changes and have not yet passed, it is best to discuss these potential changes in the tax law.

The most notable change for divorcing clients is the repeal of Alimony deductions for the paying spouse. Under the current law the spouse paying alimony gets a deduction and the spouse receiving alimony reports it as income. Under the proposed provisions the alimony would no longer be a deduction to the spouse paying and the spouse receiving alimony would not report it as income. This proposed change is for any divorce decree or separation agreement executed or modified after 2017. There may be other issues as a result of this proposed change such as IRA deductibility, tax credits and limitations, issues with applications for loans and or other financial support including education costs, medical and mortgages and potentially other non-tax issues.

Other notable changes that may influence divorcing clients in negotiations are reforms to deductions and exemptions.

  • Changes to the standard deduction:
    • Increased the standard deductions for Single individuals from $6,500 to $12,000.
    • Individuals Married filing joint returns from $13,000 to $24,000.
    • Single individuals with a qualifying child increase the Head of Household standard deduction from $9,550 to $18,000. Additional children do not increase this deduction.
  • The personal exemptions will be eliminated with the increases to standard deductions.
  • Enhancement of the child tax credit and new family tax credits. Increased child tax credits and new non-child dependents credits.
  • Repealed of several itemized deductions.
  • Changes in exclusion of gain from sale of principal residence.

Given the uncertainty of the potential issues with the proposed tax changes, we encourage you to advise your client to consider the potential impact of these changes should they become law and seek professional assistance as needed.

Richard J. Maloney, CPA, ABV         Kevin C. Kennedy, CPA, CFE       Jessica L. Parasco, CPA          Janeen A. Sorrentino, EA