The Tax Cuts and Jobs Act that went into effect in December of 2017 was designed to lower the tax burden of American families. However, the legislation will also have a big impact on couples seeking to finalize their Illinois divorces in 2019. Depending on individual circumstances, some exes will fare better than others under the tax changes.
The most significant change that will occur has to do with alimony payments. The long-standing tax rule that alimony is deductible by the payor and taxed as income to the payee has been abolished for divorces finalized in 2019. Instead, alimony will be considered a non-taxable event by the IRS. The likely effect for most couples is that the payor, who typically is in a higher tax bracket, will see a greater tax consequence than the benefit the payee in a lower bracket.
A second major change to consider and incorporate in settlement negotiations has to do with the child tax credit. This benefit, which directly lowers one’s tax burden, has doubled from $1,000 to $2,000 per qualifying child. Other differences to be aware of involve the deductibility of home mortgage interest and the deductibility of state and local income taxes paid. Also, these individual rules may be impacted by the incomes of the respective parties.
Divorce involves making a number of critical decisions as the couple transitions from life as a family to separate households. A family law attorney can offer counsel and advice on the difficult issues of property division, child custody and spousal support.