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Important Things Under the New Alimony Tax Rules in Texas


The old alimony tax rules of Texas that have been used for decades became ineffective last January 1, 2019. Under the new tax code of the state, alimony will not be counted as tax-deductible payments for the paying spouse. It will not be part of the taxable income for the receiving spouse as well. This resulted from the Tax Cuts and Jobs Act (TCJA) of 2017. However, these new rules will not affect divorces and separations that are already existing.

At the onset, it seems like spouses will end up keeping less money from alimony payments, regardless if they are the paying spouse or receiving spouse. There are ways to make up for this which will be discussed below.

Selling the House for the Tax Benefit

In a divorce, the spouse planning to keep the family home should check if he/she is qualified for tax benefits. The best way to go is selling the house instead for the purpose of a capital gains tax exclusion. The amount depends if you are single or are married and jointly filing for this. The capital tax exclusion for the former amounts up to $250,000 and for the latter, up to $500,000. This shows that it may be best to sell the house before the finalization of the divorce.

Make Use of Child Tax Credits 

In the new tax code, the Child Tax Credit amount granted to parents will have a huge bump next year from the $1,000 awarded per qualifying child to $2,000. With this, plan and make use of the Child Tax Credit to offset alimony taxes when negotiating for child custody. Child Tax Credit can have more weight than a tax deduction because your tax bill is reduced dollar-for-dollar.

Think of it this way, if you are a mom of three children owing IRS the amount of $4,000 for the previous tax year, but because of your three children, you qualify for Child Tax Credit of $2,000 per child. This means the taxes you owe for the previous year will have been offset by the Child Tax Credit. 

Explore Different Payment Methods

Payments for spousal support do not necessarily have to be paid like the traditional alimony. For instance, couples can opt for payments for property division instead of alimony. If the couple’s marital property amounts to $2 million, they can have an agreement where one of them has to pay the other $1 million in staggered terms. This is much better because payments for property division payments are not taxable.

However, the caveat of this option is if the paying spouse files for bankruptcy, the payments for property division will be affected. Alimony payments, on the other hand, are not dischargeable in the event of bankruptcy.

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Mr. Hutton is a Divorce and Custody Lawyer based out of Round Rock, TX. His background is with child psychology at Arizona State University where he received a B.S. in 2006, and he continued this by working with the Children’s Right’s Clinic at the University of Texas School of Law where he received his J.D. in 2009. Throughout his practice, he has been a strong proponent of utilizing modern technology to improve his practice and the representation of his clients. He currently is the technology chair of CAFA of Travis County and is committed to improving and modernizing the practice of law in Texas. If you have any questions you can contact him at timothy.hutton@austintexaslegal.com

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