How The New Tax Law Affects Alimony Deductions
The Tax Cuts and Reform Bills were 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 1st, 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 payer, 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 mean 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
As of January 1, 2018, dependency exemptions were repealed and eliminated, but there still exists a child tax credit. The child tax credit offsets taxpayers’ liability and is available for parents with children younger than 17.
Under the prior law, the credit could reduce one’s tax bill by as much as $1,000 for each child who qualified. The new tax bill increased the benefit to $2,000 for each one. A custodial parent can agree to assign the child credit to the noncustodial parent. (See Tax Form 8332 for details).
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.