Simply stated, for pre-2019 divorces, alimony is taxable income to the one who receives it and tax deductible to the one who pays it. However, the divorce agreement can designate alimony as nontaxable and nondeductible. For post-2018 divorces, alimony is no longer taxable income to the one who receives it or tax deductible to the one who pays it.
To be considered alimony under present tax rules, however, the payments must meet several requirements. These requirements include (but are not limited to) the following:
- All payments must be made in cash, check, or money order
- A written court order or separation agreement must exist regarding the alimony
- The order or agreement must not designate the payment as not being alimony (i.e., it cannot be designated as child support)
- The couple generally cannot live in the same household while alimony is being paid (although an exception applies in the case of payments to a separated spouse living in the same household if the payments are made under a written separation agreement, support decree, or other court order)
- The obligation to pay alimony cannot continue past the death of the payor-spouse
- The former spouses cannot file a joint tax return
You should also be aware of the alimony recapture rules. Because alimony may be tax deductible, some spouses are tempted to disguise property settlement payments as alimony. They might accomplish this by front-loading alimony during the first couple of years. That is, one spouse might agree to pay high sums of alimony during the first two years after the divorce, and to continue with normal payments thereafter. According to the alimony recapture rules (which are fairly complex), deductible alimony payments will be recharacterized as nondeductible property settlement payments to the extent that payments made during the first two years are excessively front-loaded.
For more information, consult a tax professional.
