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In Western cultures, more than 90% of people get married by the age of 50. However, between 40 to 50 percent of marriages end in divorce. With the growing number of divorces and settlements, the changes in law made by the Tax Cuts and Job Act (TCJA) are more pertinent than ever. While the new tax bill affects all Americans and their tax returns, those planning or actively in the process of divorcing should be fully aware of how the new tax law changes affecting divorce. Check out four major changes below.

The Tax Cuts and Jobs Act introduced two substantial changes to how tax law treats divorce. Deductions for alimony payments required by post-2018 divorce agreements have been eliminated. The paying spouse can no longer claim tax deductions on the alimony, and spouses receiving alimony are no longer required to claim the support as income.

A tax exemption is like a tax deduction. It reduces your taxable income just as a deduction does, however, deductions involve more requirements.  Prior to the new tax law, those who claimed a dependent would receive an exemption. In 2017, parties could exclude $4,050 out of their taxable income for each dependent. Since January 1st, 2018, that number is now $0.  

Child tax credit
Before the Tax Cuts and Job Act, parents with children under the age of 17 who have lived with them for at least one-half of the year receive a child tax credit that offsets the taxes you owe, dollar for dollar, for up to $1,000 of each qualifying child. Under the new law, parents receive $2,000 for each qualifying child. Parents are still required to claim the child as a dependent in order to receive the child tax credit.

Itemized Deductions
There have been multiple changes to the itemized deduction tax laws that directly impact divorces. For starters, standard deductions have been increased to $12,000 for single filers and $24,000 for those filing jointly. Due to fewer and less valuable deductions, divorcing couples may no longer be incentivized to agree to certain divisions and awards of property and debts in divorce settlements.

Key changes to the IRS tax code for divorce:

  • Tax preparation fees are no longer deductible
  • Legal fees paid to a divorce attorney in efforts to secure spousal support are no longer deductible
  • Home equity loan interest is no longer deductible under the new bill
  • Prior to the TCJA bill, interest on a mortgage up to $1 million could be deducted. Under the new bill, the limit is now $750,000

Carin Maxey’s blog posts are not legal advice and are meant for informational purposes only. If you require legal advice, please seek a licensed professional in your jurisdiction.