The Tax Cuts and Jobs Act (“TCJA”) signed into law by President Trump, was the largest overhaul of the U.S. Tax Code since 1986. These changes impacted almost all aspects of American life including home ownership. Over the last few posts we have detailed what has stayed the same and what has changed. In this post, we specifically look at those changes that may have an impact on those going through a divorce and how to account for changes in child credits, child deductions and spousal support.
TCJA increased the child tax credit to $2,000 from $1,000 for children 16 years of age and younger. The income phase out was significantly increased to $500,000 for all filers.
Student Loan Deduction
Retains current law of allowing deductibility of loan debt up to $2,500 subject to phase outs for income.
TCJA eliminates spousal support deductions for all divorces and separations executed after December 31, 2018. Also, any changes to pre-2019 agreements after December 31, 2018 can lose its deduction unless the modification agreement specifically states that the TCJA does not apply to the post-2018 modification.
Of course, for pre-2019 spousal support to qualify for an above the line deduction specific requirements must be met such as:
- Spousal support contained in written agreement
- Payment must be to or on behalf of spouse/ex-spouse
- Payment cannot be state to not be Alimony
- Ex-spouse cannot live in same house or file jointly
- Payment must be made in cash or cash equivalent
- Cannot be Child Support
- Payer’s return must include Payee’s social security number
- No obligations for Payments to Continue after Recipient’s Death
Contact Painter & Associates to help you navigate the TCJA and its implication of your divorce and dissolution