How The New Tax Law Affects Alimony Deductions

The Tax Cut and Reform Bill was signed into law in December of 2017. Under the new tax code, three key changes affect divorcing parties.

Alimony is one of the most important tax issues to consider. As of January 1 st, 2019, the Tax Cuts and Jobs Act (TCJA) will prevent alimony from being tax deductible for future divorcees. In contrast, alimony payments that were ordered prior to December 31, 2018, will still be tax deductible for the payor, granted filing deadlines are not missed. However, alimony payments will remain tax deductible for state taxes.

How The New Tax Law Affects Itemized Deductions

Below are some of the key changes to the IRS tax code for divorcing parties that claim deductions and itemize their tax returns each year:

1. Legal fees paid to your attorney directly attributable to securing spousal support are no longer deductible.

2. Where you could previously deduct interest on a mortgage up to $1,000,000, that amount is now $750,000.

3. Individuals who take out home equity loans will no longer be able to deduct the loan interest under the bill.

4. Tax preparation fees are no longer deductible.

In addition to these changes, the new higher standard deductions ($12,000 for single filers and $24,000 for those filing jointly) under the new law likely means that more people might not itemize at all. This is important to divorcing parties since there are key itemized deductions that accompany property and debts.

How The New Tax Law Affects Dependency Exemptions And Child Tax Credit

Beginning January 1, 2018, dependency exemptions have been repealed and eliminated, but there still exists a child tax credit. The child tax credit is a credit that offsets the taxes you owe dollar for dollar and is available if you have a child younger than 17 at the end of the year.

Under the prior law, the credit permitted you to reduce your tax by as much as $1,000 for each qualifying child. Under the new tax bill, it is increased to $2,000 for each qualifying child. Also, for a non-custodial parent to receive this benefit, the custodial parent must agree and assign that right (via Tax Form 8332) to the non-custodial parent in the years he or she will be permitted to claim a dependent child in their tax filing.

Get Answers To Your Questions. Call Koiles Pratt Family Law Group.

Consulting with one of our experienced attorneys is key to understanding how taxes will affect your divorce. Contact our Salem lawyers at 978-744-7774 or request a case assessment online to discuss your options and protect your rights.