Repeal of Alimony Deductions for Paying Spouse via the Tax Cuts and Jobs Act

 

December 19, 2017  

An update to our blog of November:

Congress is set to pass the Tax Cuts and Jobs Act this week.  Over the weekend, Congress released the Joint Explanatory Statement of the Committee of Conference (all 570 pages), which provided detail of the final proposed legislation. Three proposals will directly impact divorcing parties.

  1. Alimony: Effective for divorce decrees dated on or after January 1, 2019, payors will no longer be able to deduct alimony payments and alimony payments will not be taxable to the recipients. This obviously impacts the economics of divorce planning.
  2.  Child Exemptions: Effective for tax years beginning on January 1, 2018, there are no more personal exemptions. Therefore, the right to claim an exemption for a child (including students under age 24) is moot.
  3.  Child Tax Credit: Effective for tax years beginning on January 1, 2018, the child tax credit is increased from $1,000 to $2,000 per qualifying child. The phase out threshold is increased to adjusted gross income of $400,000 for married couples and $200,000 for all other taxpayers. Present law phase out amounts are $110,000 for married couples, $75,000 for single taxpayers and $55,000 for married filing separately.

A qualifying child generally must be under the age 17, have a certain relationship to taxpayer (child, grandchild, nieces, nephew, etc.), and live in the same house for more than half of the year. However, there is a special rule in the case of divorced or separated parents. The custodial parent may sign a written declaration giving the ability to claim a qualifying child to the non-custodial parent.

Once the legislation is passed, it will take time to digest the details. Additionally, there will be Treasury Regulations which will provide additional details.  However, it is clear that the tax aspects of divorce law have changed significantly.

 

Richard J. Maloney, CPA, ABV         Kevin C. Kennedy, CPA, CFE       Jessica L. Parasco, CPA          Janeen A. Sorrentino, EA

 


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