Is alimony still deductible by payers and taxable to recipients? It depends. There is some confusion around recent tax law changes, but the prior rules generally remain in effect for divorce and separation agreements entered into before 2019.
Old alimony rules vs. new rules
Previously, someone paying alimony could deduct payments made under a legally-binding divorce or separation decree, and the recipient was required to report the corresponding amount as taxable income, if these main requirements were met:
- The spouses don't file a joint return together
- Payments are made in cash or cash-equivalents (e.g., checks or money orders)
- Payments go to a spouse or ex-spouse under a divorce or separation instrument
- The divorce or separation instrument doesn't designate the payments as not being alimony
- The spouses aren't members of the same household when payments are made
- There's no liability to make payments after the death of the recipient spouse
However, the new law repeals the deduction, and inclusion in taxable income, for alimony paid under an agreement executed after 2018. Accordingly, the prior rules continue to apply to pre-2019 agreements.
If you paid alimony in 2018, it's deductible on your 2018 return. Going forward, deductions can still be claimed for years in which payments are made under the agreement. Similarly, alimony recipients continue to owe tax on payments on 2018 returns and possibly beyond.
What happens if an existing agreement is modified in 2019 or later? The alimony generally remains deductible by the payer and taxable to the recipient. However, if the modifications expressly state that the new rules apply, future alimony is no longer deductible to the payer and taxable to the recipient.
This can be important information for bargaining in separation and divorce negotiations. Make sure that modifications to an agreement reflect the intent of the parties.