If you are currently going through a Texas divorce or you believe a divorce may be imminent in the near future, you should consider the upcoming changes to federal tax law concerning the deductibility of alimony payments (called spousal maintenance under Texas law).
Historically, “alimony” (as defined by the Internal Revenue Code) was deductible by the payer and reportable as income by the recipient. In other words, the person paying alimony would be able to reduce taxable income by the amount paid and the receiver would pay taxes on the money received. It is important to note that the deductibility of alimony depends upon other factors as well. See IRS Topic Number 452 – Alimony https://www.irs.gov/taxtopics/tc452.
This will change effective January 1, 2019.
The Tax Cuts and Jobs Act (TCJA) recently passed by Congress eliminates the deduction for alimony payments. It also no longer requires the recipient to include alimony received as taxable income.
Importantly, the change only affects couples getting divorced starting in 2019. It does not affect alimony being paid pursuant to a divorce decree rendered before Dec. 31, 2018. So if you were divorced prior to this time, alimony payments otherwise meeting the legal requirements will continue to be deductible by the payer and taxable to the recipient.
For couples getting divorced in 2019 and beyond, the change could have major implications. The bottom line is a divorcing spouse who anticipates they will be paying alimony post-divorce has an important incentive to get the divorce concluded by the end of 2018. In fact, the legal community generally anticipates a rush of new divorce filings this year so as to take advantage of the current tax law. On the other hand, a divorcing spouse who anticipates receiving alimony may want to consider delaying the divorce until at least January 1, 2019.