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Will the new Tax Reform Act impact my Divorce?
March 16, 2018
Will the new tax law impact my divorce?
The new tax law which passed congress in December 2017 will impact your divorce.
Starting December 31, 2018, in your New York divorce, any divorce judgment entered after that date that involves spousal support will be impacted in many ways. First, after December 31, 2018, spousal support will become nontaxable to the recipient spouse and no deduction will be able to be taken by the payor spouse. However, should your divorce judgment be executed prior to December 31, 2018 your spousal support or maintenace will be taxable to the recipient and a deduction for the payor.
There are many gray areas in this law however as it is subject to interpretation by IRS opinions and the Tax Court. However, as it stands now, this is the law. And it will impact the amount of disposable income a family has in arriving at a divorce settlement.
Other ways this law will impact your family are as follows. If you have a mortgage on the marital residence, you must be aware that the mortgage interest deduction is limited to $750,000 of the home equity debt. Also, as to a Heloc loan, before the law changed you could deduct the interest on the loan. Now, you can only deduct the interest on the loan if the loan proceeds went toward renovations on the home.
There will be tax rate changes as well and you should consult with your tax attorney about same.
As for dependent exemptions these are now gone. However, it is important that you try to claim your child as a dependent because of the child tax credit you would be entitled to secure.
As for Head of Household status, that is important also as that status remains the same under the tax reform act except that there are lower tax rates and a higher standard deduction.
The good news is that the child tax credit is still applicable and in fact will be increased to $2,000.00 per child for parents earning up to $200,000 and it also allows for a $1,400 refund, if the credit is larger than the income tax liability. However, though the standard deduction has doubled, the bill does away with a whole slew of personal exemptions so that benefit might well be offset.
All of these considerations are important in having your divorce or family lawyer fashion a creative stipulation of settlement that maximizes the tax benefits for each respective party.
++++ This is only informational in nature and you must consult a tax attorney and not rely upon the information in this article