Everything you need to know about the Alimony Recapture Rule 2

The alimony recapture rule may end up costing you a lot of money at tax time!


Welcome back and thanks for joining us again as we wrap up this discussion on the alimony recapture rule. In the previous article, we looked at exactly what the alimony recapture rule is, and how it could affect you in the future. Moving on, we’re going to discuss the exceptions to this rule, and how new laws may change it in the future.


What about the new Tax Cuts and Jobs Act?


Good question. Under the current laws, anyone who pays alimony or separate maintenance can deduct an amount equal to that payment (the total paid for the year), as an “above the line” deduction in their taxes. (That’s a deduction that a taxpayer can claim without having to itemize it.) Also, taxes on alimony payments are paid by the person receiving them, not by the person paying them. But the Tax Cuts and Jobs Act will change all that.


Beginning in 2019, there will be no deduction for the person paying alimony to a former spouse, and alimony will no longer count as part of the recipient’s gross income. 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. So they don’t have to pay federal taxes on any alimony they recieve. So where does that leave the alimony recapture rule?


The changes coming up will affect many divorcing couples!


The new Tax Cuts and Jobs Act has left many people with questions. How will the new laws affect my alimony in the future? And doesn’t the alimony recapture rule just threaten to do what the TCJA has already done? The answer is this: the change in alimony taxation goes into effect after 2018, which means that any divorce or separation finalized during 2018 will be grandfathered into pre-tax reform alimony taxation rules.


The alimony recapture rule hasn’t been changed by the Act. However, for any divorce or separation entered into or modified after December 31, 2018, where alimony isn’t deductible to the payor and taxable to the payee, the alimony recapture rule becomes irrelevant. If you still have questions about how the alimony recapture rule may affect your alimony payments in future, we recommend you speak to a family lawyer, or a tax professional.


There are exceptions to the Alimony Recapture Rule.


Don’t freak out if your alimony is being modified – there are exceptions to the Alimony Recapture Rule, and the IRS does recognize that certain situations are beyond your control! For example, if the court modifies your alimony payments to be much smaller due to a change in income, or even does away with your alimony payments because your ex remarries, the IRS won’t penalize you at all.

Figuring out your alimony will need help from the experts!

At The Kronzek Firm, our skilled family lawyers have spent decades helping people from all over Michigan work through their divorces, and achieve the best possible results for their families, and futures. If you or a loved one need help with any aspect of your divorce, call 866 766 5245 and talk to one of our helpful and experienced family law attorneys. We’re available 24 hours a day, 7 days a week, including holidays, to help you work through this difficult time.