The IRS Can Burn You on Your Alimony Payments! (Pt. 2)

Calculator and tax papers
The alimony recovery rule could cost you a ton of money!

Welcome back and thanks for joining us again. We’ve been discussing the issue of alimony recapture and how it can affect you in Oakland County or anywhere else in Metro Detroit. As we pointed out in the previous article, alimony recapture is what happens when the IRS thinks you’re trying to disguise property settlements or child support payments as alimony payments. Truth be told, trying to scan the IRS with this alimony write-off happens every day in Oakland County and in Macomb County too. But aren’t there any exceptions to this rule?

There ARE exceptions to the alimony recapture rule!

Knowing what you now know about the alimony recapture rule can make the prospect of changing your alimony a little scary. However, don’t freak out if your alimony is being modified by the court. The IRS does recognize that certain situations are beyond your control, and won’t penalize you for certain modifications and changes! For example, if the court modifies your alimony payments to be much smaller because of a change in income, or even does away with your alimony payments because your ex remarries, you won’t be penalized by the IRS in any way.

Will the new Tax Cuts and Jobs Act change this rule in the future?

Yes, it will. As you might know, starting in 2019, there won’t be any deductions for the person paying alimony to a former spouse. Also, alimony won’t count as part of the recipient’s gross income anymore either. This means the payer can no longer deduct it on their taxes. On the flip side, however, the person receiving the alimony payments does not have to claim that money as income. Which means they don’t have to pay federal taxes on any alimony they recieve. Yes, it will become tax free income.

So where does that leave the alimony recapture rule? You’re not alone in being a little confused about this – many people have questions. How will the new laws affect my alimony in the future? And doesn’t the alimony recapture rule essentially just threaten to do what the TCJA has already done?

Everything is going to change in at the beginning of 2019!

For those of you wondering about how things will change once the TCJA goes into effect at the start of next year, here is the breakdown: Any divorce or separation finalized during 2018 will be grandfathered into pre-tax reform alimony taxation rules, while any divorce or separation finalized after the new law takes effect at the start of 2019, will operate under the new laws. In other words, if you’re considering divorce but haven’t started the process yet, know that your divorce will most likely be finalized in 2019 at this point. So the law will have changed by then and your alimony payments will not be deductible.

You don’t have to do it alone in Oakland County!

There’s no question about it – getting divorced is stressful! Trying to figure out how to divide your stuff, what’s best for your kids, and dealing with the money is very hard. But you don’t have to do it alone! Our experienced Oakland County divorce attorneys have helped many Oakland County residents through this process for decades, and we can help you too. So call (248) 479-6200 today and speak to our top divorce attorneys. We are available 24/7 to help you navigate this emotional and complex process. Office hours are by appointment and can be arranged after hours or on weekends when necessary.