Highlights of The New Tax Law’s Impact on Divorcing Couples

If you have been reading about the new tax laws that are going into effect in 2018, you are not alone. How will these new tax laws affect you and your family in the event of a divorce or separation? We would like to take some time to explain as much as we can. If you have further questions, do not hesitate to give us a call, or contact us online. 

Spousal Maintenance (Alimony) Changes

  1. Spousal maintenance payments are no longer deductible for divorce agreements executed or modified after December 31, 2018.
  2. The receipt of spousal maintenance is no longer includible in gross income for divorce agreements executed or modified after December 31, 2018.
  3. In other words, effective January 1, 2019, spousal maintenance payment are no longer deductible by the paying spouse or taxable to the receiving spouse, BUT ONLY FOR COUPLES DIVORCING AFTER JANUARY 1, 2019.

For divorce agreements executed or modified on or before December 31, 2018:

  1. Maintenance and unallocated support payments will still be deductible.
  2. The receipt of maintenance and unallocated support will still be includible in gross income.
  3. Maintenance is not deductible if the parties continue to live in the same residence.

Individual Tax Rate Change

  1. Individual income tax rates have been lowered to 10%, 12%, 22%, 24%, 32%, 35%, and 37%

Exemption, Itemized and Standard Deductions Changes After December 31, 2017

  1. After December 31, 2017, a payee spouse can no longer deduct as a miscellaneous itemized deduction legal fees incurred which are attributable to legal services rendered in securing spousal maintenance.
  2. Only $10,000 ($5,000 for married filing separately) of non-business state and local tax deductions (SALT) may be deducted, including state and local real property taxes, personal property taxes and state and local taxes.
  3. You can only deduct mortgage interest related to new loans up to $750,000 for a first and second home.
  4. You will not be able to deduct home equity interest, even if it is currently existing.
  5. Taxpayers with existing mortgages can continue to deduct interest on a total of $1 million of debt for a first and second home.
  6. The adjusted gross income floor is reduced from 10% to 7.5% for the medical expenses itemized deductions in 2017 and 2018 tax years.
  7. You can no longer deduct moving expense as of December 31, 2017, unless you are an active duty member of the Armed Forces.

    STANDARD DEDUCTIONS

    Tax Filing Status20172018
    Single$6,500 $12,000
    Married Filing Separately$6,500 $12,000
    Head of Household$9,350 $18,000
    Married Filing Jointly$13,000 $24,000
  8. Beginning 2018, the standard deduction will be $24,000 for married couples filing joint returns.
  9. Beginning 2018, the standard deduction will be $18,000 for filing as head-of-household.
  10. Beginning 2018, the standard deduction will be $12,000 for all other filers.
  11. Beginning 2018, there are no longer any personal or dependency exemptions.

Individual Tax Deduction and Credits

  1. The new tax law keeps the “additional standard deduction” for people age 65 and over of $1,600 for singles and $1,300 for each married spouse in 2018.
  2. A non-custodial parent cannot qualify for the Earned Income Credit.
  3. A non-custodial parent cannot qualify for the Child Care Credit.
  4. A non-custodial parent cannot file as Head of Household.

Ambiguities In Individual Tax Deductions and Credits

  1. The parent with the most parenting time overnights used to be presumed to have the right to the dependency exemption absent an agreement to the contrary.
  2. It is yet to be determined whether the parent with the most parenting time overnights will be presumed to have the right to the child tax credit.
  3. It is yet to be determined if a court order gives each parent half of the parenting time, whether the IRS will continue not to consider 50/50 custody, and the parent with the most overnights will receive the Earned Income Credit, the Child Tax Credit, and the right to file as Head of Household.

 

The above highlights are not intended to be a comprehensive summary of all the new tax laws.  Also, the attorneys at Conniff Law Offices are not tax lawyers. However, for more information on the impact the new tax laws may have on your divorce, please contact our skilled attorneys at 708-763-0999.

In accord with U.S. Treasury Department regulations we must inform you, unless expressly stated otherwise, that any advice contained in this communication is not intended nor shall be used for the purpose of avoiding tax-related penalties under the Internal Revenue Code or for the promotion, marketing or recommendation to another party of any federal tax transactions or matters set forth herein.

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