When you’re going through a divorce, one of the last things you probably consider is how it will impact your annual income tax. But understanding the basic tax consequences can help you plan accordingly — and eliminate an unpleasant surprise down the road.
Although you should always consult with a certified public accountant (CPA) or tax expert for tax-related questions, the following is a brief summary from the San Francisco Business Times of how the recent tax reform may affect you.
What’s Changing?
Tax Credits Increase: The parent who claims the dependent exemption will enjoy an increase from $1000 to $2000 thanks to the Tax Cuts and Jobs Act. Likewise, you may be eligible to claim the American Opportunity higher education credit (up to $2500) or the Lifetime Learning higher education tax credit (up to $2000.)
Alimony Credits: Under new tax law, for any divorce or separation agreement executed after Dec. 31, 2018, alimony payments will no longer be deductible by the payor nor be includible as income of the payee. This is the opposite of the previous rule (which is still applicable to your 2017 tax return) where alimony payments were tax deductible by the payor spouse and includible in income by the recipient spouse.
Contact your accountant or trusted financial advisor to find out more about the recent tax reform changes. The IRS website provides more information about how divorce may impact you at tax time this year. For a summary read our blog How Uncle Sam Weighs in on Divorce.