Repeal of the Alimony Tax Deduction Delayed to 2019

[repeal of the alimony tax deduction]

Repeal of the Alimony Tax Deduction Delayed to 2019

For weeks now, family lawyers have watched Congress wrestle with details of the Tax Cuts & Jobs Act of 2017, including the repeal of the alimony tax deduction first proposed by the House in November 2017.  The Senate version of the bill did not contain a repeal of the alimony tax deduction.  On December 15, 2017, the joint conference committee issued its final version of the bill, expected to cross President Trump’s desk by Christmas if passed by Congress.  Despite lobbying by the American Academy of Matrimonial Lawyers and the ABA Family Law Section, the reconciled bill still contains a repeal of the alimony tax deduction at Sec. 11051.  Perhaps the only consolation is that, if the bill is enacted, the repeal of the alimony tax deduction will not be effective until year-end 2018.

SEC. 11051. REPEAL OF DEDUCTION FOR ALIMONY PAYMENTS.

(a) IN GENERAL.—Part VII of subchapter B is amended by striking by striking section 215 (and by striking the item relating to such section in the table of sections for such subpart).

(b) CONFORMING AMENDMENTS.—

(1) CORRESPONDING REPEAL OF PROVISIONS PROVIDING FOR INCLUSION OF ALIMONY IN GROSS INCOME.— (A) Subsection (a) of section 61 is amended by striking paragraph (8) and by redesignating paragraphs (9) through (15) as paragraphs (8) through (14), respectively. (B) Part II of subchapter B of chapter 1 is amended by striking section 71 (and by striking the item relating to such section in the table of sections for such part). (C) Subpart F of part I of subchapter J of chapter 1 is amended by striking section 682 (and by striking the item relating to such section in the table of sections for such subpart).

(2) RELATED TO REPEAL OF SECTION 215.— (A) Section 62(a) is amended by striking 2 paragraph (10). (B) Section 3402(m)(1) is amended by striking ‘‘(other than paragraph (10) thereof)’’. (C) Section 6724(d)(3) is amended by striking subparagraph (C) and by redesignating subparagraph (D) as subparagraph (C).

(3) RELATED TO REPEAL OF SECTION 71.— (A) Section 121(d)(3) is amended— (i) by striking ‘‘(as defined in section 11 71(b)(2))’’ in subparagraph (B), and (ii) by adding at the end the following new subparagraph: ‘‘(C) DIVORCE OR SEPARATION INSTRUMENT.—For purposes of this paragraph, the term ‘divorce or separation instrument’ means— ‘‘(i) a decree of divorce or separate maintenance or a written instrument incident to such a decree, ‘‘(ii) a written separation agreement, or ‘‘(iii) a decree (not described in clause (i)) requiring a spouse to make payments for the support or maintenance of the other spouse.’’. (B) Section 152(d)(5) is amended to read as follows: ‘‘(5) SPECIAL RULES FOR SUPPORT.— ‘‘(A) IN GENERAL.—For purposes of this subsection— ‘‘(i) payments to a spouse of alimony or separate maintenance payments shall not be treated as a payment by the payor spouse for the support of any dependent, and ‘‘(ii) in the case of the remarriage of a parent, support of a child received from the parent’s spouse shall be treated as received from the parent. ‘‘(B) ALIMONY OR SEPARATE MAINTENANCE PAYMENT.—For purposes of subparagraph (A), the term ‘alimony or separate maintenance payment’ means any payment in cash if— ‘‘(i) such payment is received by (or on behalf of) a spouse under a divorce or separation instrument (as defined in section 121(d)(3)(C)), ‘‘(ii) in the case of an individual legally separated from the individual’s spouse under a decree of divorce or of separate maintenance, the payee spouse and the payor spouse are not members of the same household at the time such payment is made, and ‘‘(iii) there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment (in cash or property) as a substitute for such payments after the death of the payee spouse.’’. (C) Section 219(f)(1) is amended by striking the third sentence. (D) Section 220(f)(7) is amended by striking ‘‘subparagraph (A) of section 71(b)(2)’’ and inserting ‘‘clause (i) of section 121(d)(3)(C)’’. (E) Section 223(f)(7) is amended by striking ‘‘subparagraph (A) of section 71(b)(2)’’ and inserting ‘‘clause (i) of section 121(d)(3)(C)’’. (F) Section 382(l)(3)(B)(iii) is amended by 23 striking ‘‘section 71(b)(2)’’ and inserting ‘‘section 121(d)(3)(C)’’. (G) Section 408(d)(6) is amended by striking ‘‘subparagraph (A) of section 71(b)(2)’’ and inserting ‘‘clause (i) of section 121(d)(3)(C)’’.

(4) ADDITIONAL CONFORMING AMENDMENTS.— Section 7701(a)(17) is amended— (A) by striking ‘‘sections 682 and 2516’’ and inserting ‘‘section 2516’’, and (B) by striking ‘‘such sections’’ each place it appears and inserting ‘‘such section’’.

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to— (1) any divorce or separation instrument (as defined in section 71(b)(2) of the Internal Revenue Code of 1986 as in effect before the date of the enactment of this Act) executed after December 31, 2018, and (2) any divorce or separation instrument (as so defined) executed on or before such date and modified after such date if the modification expressly provides that the amendments made by this section apply to such modification.

The proposed legislation will apply only to alimony obligations that arise from court orders and agreements made after December 31, 2018, as well as modifications of pre-12/31/18 alimony obligations that “opt-in” to the new law.  The prior House bill, in which the repeal of the alimony tax deduction was proposed, would have been effective at the end of 2017.

The delayed deadline creates an incentive for divorcing spouses to settle or litgate their cases in 2018, before the repeal takes effect.

The repeal of the alimony tax deduction is just one of many changes in tax law that may affect separated and divorcing couples, and unmarried couples with children.  Other changes in tax law will take effect right away.  In the 2018 edition of Frumkes & Vertz on Divorce Taxation, and on this blog, I will provide extensive analysis of the changes and how they affect family law.  For legal representation in Western Pennsylvania, call me (412-471-9000) or use the contact form.