Question

Under the new Tax Cut and Jobs Act, Alimony Deductions are no longer deductible for the 2018 tax filing season Research Alimony Deductions for 2017 and 2018 1. provide an example of how the law would be applied for alimony payments for 2017 2. Provide an example of how the law would be applied for alimony payment for 2018 Please be sure the provide the examples for alimony payment received and alimony payment paid.

Answer 1

Yes, as per TCJA*, "Alimony Paid" is no longer deductible, as well as Alimony received is non-taxable.

This implies that Alimony has no tax impact.

This rule applies to all divorces after December 31/2018. And for any divorces before that (i.e, till December 21/2018) the old rule applies.

1. Earlier rule, (ALIMONY PAYMENTS for 2017 as per your request)

For the recipient (i.e, Ex-wife) = included in Gross Income. [Alimony received in cash less any child support] {Schedule 1, Line item 11}

Alimony received is included in the Gross Income as a separate line item.

For the payer (i.e; Ex-husband) = Adjustments to AGI* {Schedule 1, Line item 31a}

Alimony paid is deducted as an expense to calculate the Adjusted Gross Income

Example,

If Anna's Husband Jacob pay an alimony of $5000 including $1000 as child support to their only son Issac, then the tax impact for Anna and Jacob will be

Anna = $ 4000 ($5000-$1000) included in From 1040 to calculate Gross Income, and is taxed in normal tax bracket applicable. {Schedule 1, Line item 11}

Jacob = $4000 deductible as an expense to calculate his Adjusted Gross Income in Form 1040 {Schedule 1, Line item 31a}.

2. Today's rule, (ALIMONY PAYMENTS AFTER 2018 as per your request)

For the recipient (i.e, Ex-wife) = Non-Taxable

Alimony received is not included in Form 1040

For the payer (i.e; Ex-husband) = Adjustments to AGI* {Schedule 1, Line item 31a}

Alimony paid is not deducted as an expense in Form 1040

Example,

If Anna's Husband Jacob pay an alimony of $5000 including $1000 as child support to their only son Issac, then the tax impact for Anna and Jacob will be

Anna = Non-Taxable

Jacob = Non-Deductible

IF DIVORCED AFTER 31 DECEMBER 2018, THEN NO TAX IMPACT

Remember: For every divorces till 31 December 2018, the earlier rule applies and the New rule is for divorces from 1 Jan 2019. If you are a CPA candidate, then you may be tricked on exam with this fact

Abbreviations Used

TCJA: Tax Cuts and Jobs Act

AGI: Adjusted Gross Income

FORM 1040, Form used to file Income Tax with IRS (Internal Revenue Services) in United States