Are divorce Attorney fees tax-deductible?

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No, divorce attorney fees are generally not tax-deductible for federal income tax purposes. The Internal Revenue Service (IRS) considers legal fees incurred for personal reasons, such as divorce, to be personal expenses, which are not deductible. However, there are some exceptions and specific circumstances that were previously deductible but have changed due to recent tax law revisions.

1. General Rule: Non-Deductibility of Personal Legal Expenses

Explanation:

  • Personal Expenses Not Deductible: Legal fees for personal matters, including divorce, child custody, and other family law issues, are considered personal expenses and are not deductible.

Authoritative Sources:

  • Internal Revenue Code (IRC) Section 262(a):
    • “Except as otherwise expressly provided in this chapter, no deduction shall be allowed for personal, living, or family expenses.”
    • IRC § 262(a)
  • IRS Publication 529 (2022) – Miscellaneous Deductions:
    • “You usually can’t deduct legal fees you pay for personal reasons, such as those for the following: … A divorce…”
    • IRS Publication 529, Page 15

2. Exceptions Prior to the Tax Cuts and Jobs Act (TCJA) of 2017

Historical Context:

  • Miscellaneous Itemized Deductions:
    • Before 2018, taxpayers could deduct certain legal fees related to the production or collection of taxable income as miscellaneous itemized deductions subject to the 2% of adjusted gross income (AGI) floor.
  • Examples of Deductible Fees (Pre-2018):
    • Tax Advice: Legal fees paid for tax planning or advice in connection with a divorce.
    • Collecting Taxable Alimony: Legal expenses incurred to obtain alimony that was taxable to the recipient.

Changes Under TCJA:

  • Suspension of Miscellaneous Itemized Deductions:
    • The TCJA suspended all miscellaneous itemized deductions subject to the 2% AGI floor for tax years 2018 through 2025.

Authoritative Sources:

  • Tax Cuts and Jobs Act of 2017 (Public Law 115-97):
  • IRC Section 67(g):
    • “Notwithstanding subsection (a), no miscellaneous itemized deduction shall be allowed for any taxable year beginning after December 31, 2017, and before January 1, 2026.”
    • IRC § 67(g)
  • IRS Publication 529 (2022):
    • “For tax years 2018 through 2025, you can’t claim any miscellaneous itemized deductions that are subject to the 2% of adjusted gross income limitation…”
    • IRS Publication 529, Page 2

3. Current Tax Treatment of Divorce Attorney Fees

Post-TCJA (2018-2025):

  • Non-Deductibility:
    • Legal fees related to divorce, including those for tax advice and attempting to obtain alimony, are not deductible during the suspension period.
  • Alimony Considerations:
    • For Divorce Agreements After December 31, 2018:
      • Alimony Not Deductible/Includible:
        • Alimony payments are not deductible by the payer and are not includible in the recipient’s income.
      • Impact on Legal Fees:
        • Since alimony is no longer taxable income to the recipient, legal fees incurred to obtain it do not relate to the production of taxable income and are not deductible.

Authoritative Sources:

  • IRC Section 215 (Repealed by TCJA for agreements after 12/31/2018):
    • Alimony payments are not deductible for divorces finalized after 2018.
    • IRC § 215 (Note: Repealed for post-2018 agreements)
  • IRS Publication 504 (2022) – Divorced or Separated Individuals:
    • “Under the TCJA, alimony and separate maintenance payments are not deductible by the payer spouse, and they are not includable in the income of the receiving spouse if made under any divorce or separation agreement executed after December 31, 2018.”
    • IRS Publication 504, Page 2

4. Possible Deductible Legal Fees for Business-Related Matters

Exception for Business or Income-Producing Activities:

  • Deductible Legal Expenses:
    • Legal fees that are directly related to your trade or business or for the production or collection of taxable income may be deductible.
  • Examples:
    • Legal fees related to the protection of income-producing property.
    • Legal expenses for resolving tax issues related to your business.

Authoritative Sources:

  • IRC Section 162(a):
    • “There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business…”
    • IRC § 162(a)
  • IRS Publication 535 (2022) – Business Expenses:
    • “Legal and professional fees that are ordinary and necessary expenses directly related to operating your business are deductible as business expenses.”
    • IRS Publication 535, Page 30

5. State Tax Considerations

Potential State Deductions:

  • Varies by State:
    • Some states may allow deductions for certain legal expenses even if federal law does not.

Recommendation:

  • Consult State Tax Laws:
    • Review your state’s tax regulations or consult a local tax professional to determine if any portion of your divorce attorney fees is deductible at the state level.

Authoritative Sources:

  • State Department of Revenue Websites:
    • For example, the California Franchise Tax Board or the New York State Department of Taxation and Finance.

6. Key Takeaways

  • Divorce Attorney Fees Generally Not Deductible:
    • Legal fees for personal matters like divorce are considered non-deductible personal expenses.
  • Exceptions Limited Post-TCJA:
    • The suspension of miscellaneous itemized deductions eliminates the deductibility of certain legal fees that were previously allowed.
  • Business-Related Legal Fees May Be Deductible:
    • Legal expenses directly related to business activities or income-producing property may be deductible.
  • State Laws May Differ:
    • State tax laws may offer different deductions; consult local regulations.

7. Recommendations

  • Consult a Tax Professional:
    • Given the complexities and changes in tax law, seek advice from a Certified Public Accountant (CPA) or tax attorney.
  • Keep Detailed Records:
    • Maintain documentation of all legal fees and their purposes in case any deductions are allowable.
  • Stay Informed:
    • Tax laws can change; stay updated on current tax regulations affecting deductions.

8. Additional Resources

Disclaimer: The information provided is for general informational purposes and should not be considered legal or tax advice. Tax laws are complex and subject to change. For advice specific to your situation, consult a qualified tax professional or refer to official IRS resources.