If your divorce isn’t going to be final before the end of the year (or if you haven’t begun the process yet) and alimony is part of it, you’ll be facing the new rules established under the Tax Cuts and Jobs Act (TCJA) signed into law a year ago. For the first time in over 70 years, alimony payments won’t be tax deductible for payers or reportable as income by recipients.
The new rules will have a considerable financial impact on people in high tax brackets who, unlike those with divorce agreements already in place, won’t get to offset their payments with sizable deductions when they file their taxes. However, there are some provisions in the new law that can work to the advantage of those who divorce in 2019 if they learn how to use them to their benefit.
A change in the tax code under this new law lowers the cap on deductions for mortgage interest. Taxpayers will be able to claim $750,000 in interest payments instead of $1 million. While that change won’t impact most homeowners, if it will affect you, it’s worth considering when you decide whether you want to keep the house or sell it.
If you sell the house while you and your spouse are still filing your taxes jointly as a married couple, you can exclude as much as $500,000 in capital gains. You can exclude half that if you sell it while filing as a single person. It’s worth getting some professional advice on the tax benefits and legal ramifications of what you do with your home as you go through your divorce.
There’s some good news in the new tax law for some parents. The child tax credit is doubling from $1,000 to $2,000 for each qualifying child. That change applies to couples filing their taxes jointly whose annual combined income is $400,000 or less and those filing as individuals earning no more than $200,000 annually.
Finally, you can save money on your divorce by the type of process you use. If you and your spouse are able to work together to negotiate your agreements, a mediated divorce can save you money, time and stress. Under state law, Florida divorces typically need to at least begin with mediation, even if you later litigate your issues. An experienced attorney can provide more information about the mediation process.