Tax reform is top of the agenda for the Trump administration, and the bill that has already been passed by the House of Representatives would have a huge impact on the tax implications of divorce settlements.
The most significant is the elimination of the tax deduction for alimony. Even though the revenue this change generates for the government is relatively small, it has an enormous impact on the individuals affected.
Currently, the person that pays alimony is able to deduct their payments from their taxable incomes, providing a tax break. The person receiving the alimony payments is then required to pay income taxes on the amount they receive in alimony. Since the alimony payor is usually in a higher tax bracket then the payee, this reduces the overall tax burden of the couple/family. The new bill would shift the responsibility of paying taxes to the person paying the alimony, and the recipient would get the payment tax-free. This will generally incentivize the payor to keep the alimony payments smaller.
Other possible changes include the number of years you must own your home prior to selling it in order to exclude the gain from the sale, elimination of the mortgage interest tax deduction, and changes to the ability to deduct state and local income taxes.
Read more here:
New Tax Treatment of Maintenance and Implications for Divorcing Couples
Divorce Alert: Tax Bill Targets Alimony Deduction