How the Tax Cuts Could Impact Your Family Law Case
On December 22nd, 2017, President Trump signed the GOP tax reform bill into law. Among other things, the Tax Cuts and Jobs Act (TCJA) of 2017 has ramifications for family law cases. Here, our Clearwater family law attorney highlights some the most important things that you need to know about the 2017 tax cuts.
Three Ways in Which Your Family Law Case Could Be Affected By Tax Reform
- Alimony Will Be Taxed Differently
Under the previous tax rules, alimony was tax deductible to the paying spouse and taxable income for the receiving spouse. In effect, this means that alimony was paid in pre-tax dollars. The Tax Cuts and Jobs Act dramatically reforms how alimony will be taxed. Under the new law, the alimony deduction will be eliminated and alimony will no longer be counted as taxable income to the receiving spouse. In other words, alimony will be paid in post-tax dollars.
This is not good news for divorcing couples. In the overwhelming majority of cases, the spouse who pays alimony is in higher tax bracket than is the spouse who is receiving alimony. Paying alimony in pre-tax dollars allows the former couple to reduce their collective tax liability, thereby leaving more total money for the divorce to case to be settled. Notably, the new rule on the tax treatment of alimony does not go into effect until January 1, 2019.
- Itemized Deductions Have Changed
The GOP tax reform bill has also altered deductions. While the standard deduction has been expanded, many itemized deductions have been suspended, reduced, or removed from the tax code. This includes itemized deductions that benefit people who are going through a divorce or another type of family law case. Most notably, under the new tax law:
- The personal exemption has been suspended;
- The mortgage interest deduction cap has been reduced from $1,000,000 to $750,000;
- Home equity loan interest is no longer tax deductible;
- Certain non-job-related moving expenses are no longer deductible; and
- Certain legal costs are no longer deductible.
- Important Changes in Child Tax Policy
Child dependency exemptions, like other personal exemptions, have been eliminated. Going forward, custodial parents will no longer be entitled to a dependency exemption for their children. However, the child tax credit has doubled. Under previous rules, parents could reduce their total income tax liability by $1,000, per child. Under the new rules, this credit has been increased to $2,000 per child.
You can only claim the child tax credit if the child is your dependent. As such, this benefit is assumed to go to the custodial parent. Though, in certain circumstances, it does make financial sense for this tax credit to be shifted to the non-custodial parent. To do so, both parents must agree to the arrangement and they must complete and submit Tax Form 8332.
Contact Our Clearwater Family Law Attorney Today
At the Law Office of Gale H. Moore P.A., our Florida family law attorney is standing by, ready to assist you with your case. If you have any questions or concerns about how these tax cuts could affect your case, we can help. Our legal team will ensure that your best financial interests are protected. For a confidential case evaluation, please contact our office today at 727-584-2528.
Resources:
tampabay.com/news/politics/national/Trump-signs-sweeping-tax-bill-into-law_163851098
irs.gov/credits-deductions/individuals/standard-deduction-at-a-glance
