Articles Tagged with tax reform

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Carolyn Woodruff, J.D., C.P.A, C.V.A.

Forget it!

Forget about the alimony deduction for all new decrees or instruments post-2019. (See Part I for modification of pre-2019 alimony orders and agreement, as modification has a separate set of rules.) The deduction is gone absent a congressional miracle. That means on December 31, 2018, or before you must have alimony that qualifies under IRC Section 71 before it is repealed. The alimony must meet the terms of Section 71, pre-TCJA and pre-2019, which are as follows:

a. You must have a qualifying decree or instrument;

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Carolyn Woodruff, J.D., C.P.A, C.V.A.

Previously, we examined the paragraph and subparagraphs defining “divorce or separation instruments.” Now let’s take a look at which sections of TCJA incorporate these subparagraphs.

Sections incorporating all three subparagraphs of the definition of divorce or separation instrument Post-2018.

The two sections of TCJA that adopt all three subparagraphs of the definition of divorce or separation instrument post-2018 are as follows:

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Carolyn Woodruff, J.D., C.P.A, C.V.A.

The repeal of the alimony tax sections for the inclusion of income and deduction has an ancillary impact on other divorce tax issues. The effective date for all ancillary issues discussed in this article is December 31, 2018, the same as the alimony repeal. These December 31, 2018, changes shall be referred to herein as “post-2018” changes.

The law before TCJA will be referred to as “pre-2019.”

In this first section, we’ll look at what a divorce or separation instrument is.

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Carolyn Woodruff, J.D., C.P.A, C.V.A.

Divorce was hard enough, and now alimony tax reform. Do you feel good or bad about alimony? No matter your answer, this alimony tax reform revolutionizes the divorce arena, and you need to know how it may affect you and your clients. Judges need to know how it might affect those whose appear before them as litigants. So let’s dig in.

This article is Part I of three parts. Part I deals with the basics of the alimony taxation changes under the Tax Cuts and Jobs Act (“TCJA”), referred to herein as the “new Alimony Statute.” Multiple sections of the Internal Revenue Code related to alimony are changed under the TCJA. The new Alimony Statute is contained in Section 110151 named “Repeal of Deduction for Alimony Payments” in PL 115-97, HR1, December 22, 2017, 131 Stat 2054.  When I refer from now on to the “old Alimony Statute,” I am referring mainly to Internal Revenue Codes Sections 71 and 215 as they existed before the TCJA.

Part II will deal with ancillary federal tax considerations of the new Alimony Statute, of which there are many.  Part III will discuss considerations of the new Alimony Statute under North Carolina domestic relations law and explore creative possibilities for the use of the new Alimony Statute.