Family Law Section Blog: The New Tax Reform: What It Means for Individuals Going Through a Divorce:

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  • The New Tax Reform: What It Means for Individuals Going Through a Divorce

    The 2017 Tax Cuts and Jobs Act imposes sweeping changes in the tax code. Some of the most dramatic changes will affect taxpayers going through a divorce. David Karp discusses the changes that family law attorneys should be aware of.

    David B. Karp

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    Congress recently passed the 2017 Tax Cuts and Jobs Act (Act), which imposes some of the most comprehensive tax law changes in more than 30 years. Many of those changes will affect the practice of family law.

    Family law lawyers should be aware of these changes:

    Deduction for Maintenance Payments Eliminated

    The Act eliminates the deduction for maintenance payments required under a divorce or separation decree that are executed on or after Dec. 31, 2018. The recipients of affected maintenance payments will no longer be required to include such payments as taxable income.

    The Act’s treatment of maintenance payments will apply to payments that are required under divorce or separation documents that are:

    1. executed after Dec. 31, 2018, or

    2. modified after that date, if the modification specifically states that the Act’s treatment of maintenance payments (not deductible by the payer and not taxable income to the payee) now applies.

    Child Tax Credit Doubled

    The child tax credit is now increased from $1,000 to $2,000, and a partial credit is allowed for certain non-child dependents. Under the prior law, each qualifying child under the age of 17 was allowed a $1,000 credit opportunity.

    David B. Karp com dbk karplawfirm David B. Karp, Marquette 1982, practices family law in Milwaukee with the law firm of Karp & Iancu, SC, where he concentrates his practice predominantly on family law matters.

    The credit is now increased to $2,000 per qualifying child under the age of 17. It is anticipated that the child tax credit can be transferred to the non-custodial parent using IRS Form 8332 or as such revised IRS form as may be developed to allow the credit.

    Standard Deduction Increased

    The new standard deductions are increased and in place for 2018 through 2025. For married filing jointly, the deduction is increased from $12,700 to $24,000. For filing single, the deduction is increased from $6,350 to $12,000. For head of household status, it has been increased to $18,000 from $9,350.

    Personal Exemptions Eliminated

    With the increase in the standard deductions, there are no longer any personal exemptions available. This includes the $4,050 previous deduction per qualifying taxpayer, spouse, or dependent. There is no longer a child tax dependency exemption starting in tax year 2018 through 2025.

    Limits to State and Local Tax Deductions

    Under the new tax laws, starting in 2018, state and local tax deduction is limited to $10,000 on an annual basis. Under the prior tax law, there was no limit. This includes the deduction for property taxes on real estate.

    Limits to Mortgage Interest Deductions and Home Equity Lines of Credit

    Mortgage and home equity indebtedness interest deduction is limited. Home equity interest is no longer permitted. Under the previous law, it was deductible up to $100,000. The deduction for mortgage interest on principal residences is now limited to $750,000 unless the mortgage debt was incurred on or before Dec. 15, 2017. In that event, the limit for the deduction remains at $1,000,000 of indebtedness for the qualifying residence interest.

    New Income Tax Brackets and Rates

     

    Taxable Income

    Rate (percent)

    Single

    Married Filing Jointly

    10

    $0+

    $0+

    12

    $9,525+

    $19,050+

    22

    $38,700+

    $77,400+

    24

    $82,500+

    $165,000+

    32

    $157,500+

    $315,000+

    35

    $200,000+

    $400,000+

    37

    $500,000+

    $600,000+

    Conclusion

    The new tax legislation imposes sweeping changes both to the individual taxpayer as well as to those individuals going through a divorce.

    Some of the most dramatic changes deal with the elimination of the maintenance deduction, starting Dec. 31, 2018, as well as the elimination of the child tax dependency exemption.

    To learn more about how the 2017 Tax Cuts and Jobs Act impacts individuals going through a divorce or separation, sign up for the webinar on March 13, 2018, by the Collaborative Family Law Center of Wisconsin and co-sponsored by the State Bar of Wisconsin Family Law Section.

    This article was originally published on the State Bar of Wisconsin’s Family Law Section Blog. Visit the State Bar sections or the Family Law Section web pages to learn more about the benefits of section membership.




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