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Changes to Tax Issues in Divorce in the Tax Cut and Jobs Act of 2017
There are many changes to be aware of that change the tax issues affecting all divorces as a result of the Tax Cut and Jobs Act of 2017 (the Tax Act). The highlights are as follows:
- The dependent exemption for children has been repealed. Many divorces award the exemptions to parents in a divorce. In place of the exemption, the child tax credit has been increased and will be available to higher income persons.
- It now becomes imperative if you have a shared custody arrangement that you keep a calendar to prove that you qualify for the head of household. There is a $500.00 penalty to preparers who do not diligently determine if their client has the child at least 183 overnights. The custodial parent automatically is awarded head of household.
- There are other qualifying rules for claiming the tax credit which should be explored closely with your tax preparer and your attorney.
- The Tax Act also eliminates the tax deductibility for spousal maintenance (alimony) for any decree entered after 12/31/18. The decrees entered before that date will still recognize deductible spousal maintenance (alimony); however, certain rules may apply should you modify a maintenance order after the above date.
- The deductibility of other certain expenses will also be eliminated or reduced including: home equity loans, medical expenses, state and local taxes, legal fees in some divorces, hobbies, tax preparation fees, unreimbursed employee expenses, to name a few. In crafting the final agreement or determining income available for support, these changes will need to be considered.
The above summary is not legal advice but merely an outline of some major issues to consider in finalizing or amending your divorce decree. Please contact one of Bosshard Parke’s experienced family law attorneys to arrange a consultation.