By Kelly Hartog
One of the most significant changes in the GOP tax plan is the abolition of the alimony tax break. Until now, the person paying alimony in a divorce could claim a tax deduction on that money. The spouse receiving alimony then had to declare those funds as taxable income.
However, with the passage of the Tax Cuts and Jobs Act (TCJA), beginning January 1, 2019, the spouse paying alimony will no longer be able to claim a deduction on those funds and the recipient will no longer have to declare those funds as taxable income.
That means 2018 is now the final year to receive a tax deduction if you're paying alimony. Will people rush to finalize their divorces before New Year’s Day?
Individual tax statistics from the IRS from 1995 to 2015 show an ever-growing gap between reported alimony paid and received. IRS records from 2015 (the most recent statistics available) show that $11,904,390 was reported as alimony paid, but only $9,654,891 was reported as alimony received. However, the IRS has no way of knowing whether this discrepancy occurred because the payor claimed a deduction for alimony that they did not pay or the recipient did not report alimony income they received.
Whether or not these discrepancies will continue with the implementation of the new tax law, attorneys believe the new laws will be a game changer for a variety of reasons, and a major headache for all parties involved.
Alan Plevy, Co-Founding Principal and Family Law Attorney at SmolenPlevy in Washington, D.C., says, "The new law will have people either scrambling to resolve their case before the deadline or taking their time in an effort to delay the decision, depending on whether you are the wealthier spouse. It may also affect the amount of alimony paid. Because it will no longer be tax deductible, a spouse might offer to pay less in alimony but more in mortgage interest or property taxes, because they remain tax-deductible."
Plevy argues that the new law will likely have a greater impact on men as "the husband is the one paying alimony in a majority of breakups."
Chloe Wolman, a partner with Davies Wegner Law in Los Angeles believes the new laws will actually discourage divorce and will have a greater impact on the alimony recipient, who is usually the woman, and it may discourage her from filing for divorce. "For those in desperate need of every dollar in support, they will find themselves unable to make ends meet," Wolman says. "Particularly for very needy spouses who might have been out of work for long periods of time caring for minor children, this will be devastating. If couples are aware of these effects, a needy spouse might decide to stick with a failed or failing relationship simply to avoid poverty."
Elysa Greenblatt of Greenblatt Law LLC in Midtown Manhattan believes one of the major side effects of the new law will be a rise in attorney fees. The deduction the payor used to receive was considered "found money", but with the loss of that money, "it could make it more difficult to settle cases where money is tight," she says. "One might think that people who expect to receive alimony should try to wait things out and not get divorced this year. That might be shortsighted, though. The loss of this deduction will make a lot of cases more difficult to resolve and that is going to drive up counsel fees. Of course, we will have to wait and see if that is true, but I do not see any winners here yet."
Get your Refund Fast and File your Taxes for Free.
Originally Posted at: https://www.moneytips.com/will-the-new-tax-laws-see-a-rush-on-divorces-in-2018