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In this 2018 edition of Divorce Taxation, author Brian C. Vertz explores the sweeping changes ushered in by the Tax Cuts & Jobs Act of 2017, enacted by Congress on December 22, 2017. One of the most substantial and unexpected changes is a permanent repeal of the alimony tax deduction under I.R.C. § 71 and 215, effective December 31, 2018. Other significant changes in the tax law that will impact your family law practice include:
New limitations on the tax deductions for qualified residence mortgage interest and real estate taxes (as well as state and local income tax) will mean that fewer taxpayers will itemize their deductions. [Chapter 2]
In 2018, lawyers will be anticipating and planning for the post-2018 repeal of the alimony tax deduction, effective December 31, 2018. Pre-2019 divorce instruments will preserve the alimony tax deduction, even for most post-2018 modifications. Family lawyers will have to adapt their strategies. [Chapters 3 & 4]
An increased standard deduction and child tax credit might (in some, but not all, cases) make up for the suspension of personal and dependency exemptions and miscellaneous itemized deductions for tax years 2018 through 2025. Your mileage may vary. [Chapter 5]
With the suspension of miscellaneous itemized deductions, legal fees incurred to produce or collect alimony will not be tax-deductible. [Chapter 7]
The kiddie tax is no longer based upon parents' marginal income tax rates, but now is tied to the trust and estate income tax brackets. [Chapter 8]
New tax brackets and enhanced standard deductions might mean that getting "head of household" filing status is more important than ever. [Chapter 9]
The U.S. Supreme Court decision that affects military servicemembers' pensions may have created a "leaky bucket" for their former spouses. [Chapter 14]
Is a prenuptial agreement capable of preserving the alimony tax deduction for a future divorce? Many say "no," but perhaps there's an argument to be made. [Chapter 18]
