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
Significant changes to the IRS tax code impacting divorcing parties who claim deductions and itemize their tax returns each year include:
1. The inability to now deduct tax preparation fees.
2. You can now only deduct interest on a mortgage up to $750,000 – a decrease from the previous cap of $1 million.
3. If you take out a home equity loan, you will not be able to deduct the interest.
4. You will no longer be able to deduct legal fees paid to your attorney directly attributed to obtaining spousal support.
Under the new law, the higher standard deductions ($12,000 for single filers and $24,000 for joint filers) mean more people may decide to not itemize. This is important to those going through divorce as there are key itemized deductions accompanying debts and property.
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As of January 1, 2018, dependency exemptions were repealed and eliminated, but there still exists a child tax credit.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.