Pre 2018 alimony agreement modified to lower payment in 2019

[josephfolsomcpa]

I have a client that got divorced years ago (way before 2018) and has been paying alimony since then.  The client fell on hard times and was able to get the alimony payment decreased starting in 2019.  If the only change is the amount and no other language was added, is the new alimony amount still deductible?  (The IRS instructions are a bit confusing since they say the new agreement has to state that the alimony is not taxable).

[RollTide68]

Amounts paid as alimony or separate maintenance payments under a divorce or separation instrument executed after 2018 won't be deductible by the payer. Such amounts also won't be includible in the income of the recipient. The same is true of alimony paid under a divorce or separation instrument executed before 2019 and modified after 2018, if the modification expressly states that the alimony isn't deductible to the payer or includible in the income of the recipient.

https://www.irs.gov/publications/p504

[Mimbreno]

I interpret the below excerpt to say the alimony your are working with remains under the old rules.

This article clarifies information provided on page 10 of IRS Publication 5307, Tax Reform Basics for Individuals and Families for the repeal of deduction for alimony payments under the Tax Cuts & Jobs Act of 2017.

Alimony or separation payments paid to a spouse or former spouse under a divorce or separation agreement, such as a divorce decree, a separate maintenance decree, or a written separation agreement, may be alimony for federal tax purposes.  Alimony or separation payments are deductible if the taxpayer is the payer spouse.  Receiving spouses must include the alimony or separation payments in their income.

Beginning Jan. 1, 2019, alimony or separate maintenance payments are not deductible from the income of the payer spouse, or includable in the income of the receiving spouse, if made under a divorce or separation agreement executed after Dec. 31, 2018. 

This also applies to a divorce or separation agreement executed on or before Dec. 31, 2018, and modified after December 31, 2018, as long as the modification:

• changes the terms of the alimony or separate maintenance payments; and
• states that the alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.

On the other hand, generally alimony or separate maintenance payments are deductible from the income of the payer spouse and includable in the income of the receiving spouse, if made under a divorce or separation agreement executed on or before Dec. 31, 2018, even if the agreement was modified after December 31, 2018, so long as the modification is not one described in the preceding paragraph.
 

[itonewbie · Accepted solution]

TCJA is clear about this.  If no other language was added, deduction should still be allowed.

(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.

[Terry53029]

Irs clarification:

Beginning Jan. 1, 2019, alimony or separate maintenance payments are not deductible from the income of the payer spouse, or includable in the income of the receiving spouse, if made under a divorce or separation agreement executed after Dec. 31, 2018. 

This also applies to a divorce or separation agreement executed on or before Dec. 31, 2018, and modified after December 31, 2018, as long as the modification:

• changes the terms of the alimony or separate maintenance payments; and
• states that the alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.

On the other hand, generally alimony or separate maintenance payments are deductible from the income of the payer spouse and includable in the income of the receiving spouse, if made under a divorce or separation agreement executed on or before Dec. 31, 2018, even if the agreement was modified after December 31, 2018, so long as the modification is not one described in the preceding paragraph.

See source:https://www.irs.gov/forms-pubs/clarification-changes-to-deduction-for-certain-alimony-payments-effec...

[josephfolsomcpa]

Thanks, this is what I was thinking as well.

[itonewbie]

Glad to be of help, @josephfolsomcpa!