The Tax Cuts & Jobs Act of 2017 eliminated the tax deduction previously allowed for alimony payments effective January 1, 2019. This meant that alimony payments made pursuant to an agreement executed after December 31, 2018 could no longer be deducted from the income of the party making the payments nor would it be included in the income of the party receiving the payments. The actual implementation of this change remained unclear, however, particularly for agreements executed prior to December 31, 2018 but modified after that date. Specifically, were these modified agreements still governed by the old law or did the modification subject the payments to the new law?
On July 22, 2019, the IRS issued an article clarifying the treatment of payments pursuant to a modified agreement. This article explained that the new law applied to a modified agreement if the modified agreement 1) changed the terms of the alimony or separate maintenance payments and 2) stated that the alimony or separate payments are not deductible by the payer spouse or includable in the income of the receiving spouse. Thus, modified agreements that do not change the terms of the payments and state the payments are not deductible/includable remain subject to the old law.
For parties who have not yet finalized their divorce but have an ongoing support order that was entered prior to January 1, 2019, the IRS publication suggests that it is possible to maintain the deductibility of support payments simply by characterizing future payments as a modification of the prior support order. However, it is important to discuss this possibility with an attorney as this argument has not been tested in Court, and the IRS may issue further clarification on this issue in the future.