A revised tax law has been signed into law. It is called the 2017 Tax Cuts & Jobs Act (“TCJA”). While there are too many changes to go into here, there are a few changes that directly impact those who are going through divorce and those with minor children.
The first major change is in the area of alimony. Traditionally, alimony was taxable to the receiving spouse and deductible to the paying spouse. For divorces entered into after December 31, 2018, whether the result of trial or written agreement after that date, alimony will not be taxable to the receiving spouse and will not be deductible by the paying spouse. Thus, alimony will be like child support – nontaxable and nondeductible.
Please note that divorces prior to December 31, 2018 are not impacted by TCJA. One can negotiate whether alimony will be taxable/deductible or nontaxable/nondeductible for divorces entered prior to December 31, 2018. Also, existing divorce judgments are “grandfathered,” meaning that they are not affected by TCJA. If the alimony was taxable and deductible, it remains taxable and deductible. Even if the amount of alimony is changed as a result of modification proceedings, the new law will not apply unless the parties specifically state in writing that the new law is to apply.
One nuance is that prenuptial agreements already entered into are not grandfathered and need to be revisited in light of the new tax law if there are references to taxable/deductible alimony. You should consult with your family law attorney concerning possible amendment of your prenuptial agreement.
The second major changes is effective immediately. Taxpayers will no longer be allowed to deduct children and other persons who qualify as dependents. However, since tax rates have been lowered and the standard deduction has been raised, this may not prove to be a significant factor depending upon the taxpayer’s particular circumstances.
The third change is the increase in the standard deduction. The standard deduction gives taxpayers who do not itemize their deductions a set amount as a deduction from income. The TCJA takes away certain expenses that previously could be deducted from income. Instead, the standard deduction was raised to $12,00 for persons filing as Single, $24,000 for persons filing as Married and $18,000 for persons filing as Head of Household.
Fourth, the child tax credit is increased from $1,000 to $2,000 per qualifying child, with $1,400 being fully refundable. This credit is phased out for single filers whose adjusted gross income exceeds $200,000 and for joint filers whose adjusted gross income exceeds $400,000.
If you or a loved one are divorced or are going through divorce, call a divorce lawyer in Boca today to discuss the ramifications of this new law.