President Trump signed the Tax Cuts and Jobs Act in December of 2017, overwriting a decades-old tax law. The old rules allowed alimony to be tax deductible by the spouse paying. The spouse receiving the alimony payments was required to record them as taxable income. After the new law takes effect on January 1, 2019, alimony paid is no longer be deductible. If you are going through a divorce, you should consider finalizing it before the end of 2018.
How Will this Affect Those Going Through a Divorce?
The new tax law comes into effect on January 1, 2019. When it does, wealthier couples or couples in which one partner earns significantly more than the other will be affected the most. Because alimony will no longer be tax deductible, the spouse paying alimony will see smaller returns. Meanwhile, the spouse who received alimony might see less money coming in. This is mainly because the main incentive to pay more, the tax exemptions will be removed.
Along with alimony, asset division may affect the taxes of those going through a divorce. The old tax laws allowed for deductible mortgage debt of up to $1,000,000 on your tax return. The new law reduces that maximum amount to $750,000. The amount of deductible property tax has also been reduced under this new law. When selling the house, a married couple can exclude up to the first $500,000 in gains from the sale. Conversely, a single individual can only exclude up to $250,000 in gains. In a couple where one spouse makes significantly more than the other, this can have a huge financial impact. These factors should play a part when deciding whether or not to sell the home before the divorce is final. Downsizing before a divorce might be a temporary discomfort that can save you money down the road.
Alimony and home ownership hold a lot of weight as far as what will be affected by the new laws. Pre- and post-nuptial agreements will also have to be considered, as some of the agreed upon items may not apply anymore. You should review these agreements with your spouse and decide whether or not some things can or should be renegotiated. Having an attorney evaluate the agreement for how it complies with the new law can make the process easier.
Another important thing to consider is the fact that you will no longer be entitled to personal and dependent exemptions. With that being said, however, the maximum child credit has been increased, as well as the qualifying income level. This means that more families with children under the age of 17 can qualify for these exemptions.
Schedule a Consultation with an Experienced Divorce Attorney
The Tax Cuts and Jobs Act will not take effect until next year. However, 2018 is already more than halfway over. If there is a possibility that you may experience a divorce, consider getting it finalized before the year is over. That still does not mean you should rush into it. Contact an experienced divorce attorney in Jacksonville to help you assess your options in light of the new law. The attorneys at Parker & DuFresne have decades of experience helping the people of Jacksonville. Call us at 904-432-3678 to schedule a free consultation.