Tax laws were overhauled at the end of December 2017. In fact, it was the most dramatic tax reform for several decades. While experts are still determining how the new laws will affect individuals for the 2018 tax year, there are a few specific provisions that will change terms and conditions that are commonly associated with divorces in Florida. Below is just a brief outline of some of these new provisions.
Taxation of Alimony Payments
Before the new law went into effect, alimony was a tax-deduction for the party that paid it. It was also required to be reported as income for the receiving party. Under the new law, alimony is no longer a tax deduction. It is also no longer taxed as income.
Because the recipient’s tax rate is likely lower than the person providing the funds, the overall taxes paid will increase between the parties. However, the receiving party will not have to pay taxes on the alimony as income, which benefits the party that likely does not have as much money to pay taxes.
Personal Exemption Elimination
The new tax law has eliminated the “personal exemption.” This exemption provided a deduction for the tax filer, their spouse, and any dependents. In divorce settlements, the couple often reached an agreement about who could claim the personal exemption for their children. Sometimes claiming this exemption would switch off from year to year. With the elimination of the exemption, such an agreement will not be available.
Child Tax Credit Increase
Prior tax laws included a child tax credit of up to $1,000 per child. The new tax law has increased the credit to up to $2,000. Up to $1,400 of the credit is now refundable also, which is a significant change from prior years.
Because the child tax credit significantly reduces taxes owed and may even result in a refund, the child tax credit will likely be more of a focus in divorce agreements going forward.
529 Plan Changes
529 Savings Plans have traditionally been used for college savings vehicles. However, the new tax laws also allow parents to use funds in the 529 Plan for pre-college tuition expenses, which would include tuition related to private schooling. Parents can now use up $10,000 per year to pay for private school education.
Changes to 529 Plans could be a more important factor to consider for divorcing parents because they may be able to use the plans sooner under the new rules.
The amount that homeowners can deduct for mortgage interest has decreased. It has been reduced from $1,000,000 to $750,000 for any new home loan that takes effect after December 14, 2017. Mortgage interest that is based on home equity is no longer deductible, however.
The tax credit for home mortgage interest is sometimes a consideration for couples while their divorce is pending or as part of a marital settlement agreement.
Getting Help with the New Tax Laws and Your Divorce
To completely understand how the new tax laws will affect your divorce, you should consult with an experienced Florida divorce attorney. Contact McKINNON LEGAL for more information and learn more about setting up an appointment with a member of our team.