Top 8 Changes to Family Law with the Passage of the Tax Cuts and Jobs Act with Guest Eric Rollinger

You can find Eric here: Stein Sperling Eric Rollinger on LinkedIn Show Notes: [04:50] Eric is a tax attorney at Stein Sperling. He does tax controversy work and litigation support work primarily in a divorce setting. [05:38] Alimony isn’t the only thing affected by the new tax laws. There are many other changes to the tax cut and jobs act or TCJA. [06:23] The change that took place for alimony has switched who can deduct the alimony payment. Alimony is not deductible by the payor, and it is not considered income for the recipient. [07:25] This is the only change that took effect January 1st of 2019. Most of the other changes took effect January 1st of 2018. [08:22] Sadly making alimony not taxable is less incentive for paying higher alimony. [09:53] Alimony payments before TCJA took effect still follow the old law. [12:27] Alimony is a defined term in the IRS code. It has to be paid in cash and to the former spouse or on the former spouse’s behalf. [14:25] Maryland has a default law that says the payment stop on the death of the recipient. [16:23] What qualifies as a written instrument? Defined in Section 71 subsection B. These are divorce decrees, marital settlement agreements, or agreements incident to a divorce. [17:28] The US tax court says a written instrument doesn’t need to satisfy certain requirements. [18:52] Be careful about written exchanges with a soon-to-be former spouse. [20:26] It’s likely that prenuptial agreements don’t qualify. [24:27] Attorney’s fees are no longer tax deductible. A lot of items that used to be deductible are no longer deductible. [26:42] This tax cut expires in 2025 will go back to what the law was in 2017. [27:22] Standardized deductions. When people don’t itemize, they take the standard deduction. Some itemized deductions have been taken away but the standard deduction has been raised. It has almost doubled for most filing statuses. [29:11] Personal and dependent exemptions have also been changed. From 2018 to 2025, the personal exemption and the dependency exemption are now zero. [31:44] Shared custody can impact the dependent exemption. It becomes a race to file the tax return first and claim the children as your dependent. If there is a lack of agreement, whoever has more nights with the children gets to claim the exemption. [33:34] The IRS instructions and the law may be different. The statute says the custodial parent takes the exemption. [35:26] It’s important to know who has more time with the children during the year. [39:23] The child tax credit. The TCJA doubled the child tax credit to $2000. [40:17] The best tax code benefit is a refundable tax credit. Then a non-refundable credit, an off the top deduction, and an itemized deduction. [40:40] Credits are better than deductions, because it’s a dollar for dollar tax reduction. [41:56] The credit begins to phase out at $400,000 of income. [43:34] A child has to be 17 or younger in order to be claimed as a tax credit. You also have to bare a relationship with that child. [46:45] Another big change is the limit on mortgage interest deductions is now $750,000 as opposed to $1,000,000. This doesn’t apply to people who have already purchased their homes. [50:04] In the past, you could deduct up to $100,000 of home equity indebtedness interest. Now it is not allowed. It’s not grandfathered in going forward. [53:59] 529 plans. These are college savings plans in a tax free vehicle with after tax dollars. The growth is not taxable if it is used for qualified education expenses. [56:41] Starting in 2018, this money can also be used for elementary or secondary education. [57:07] Out-of-pocket school expenses may be deductible. These 529 plans can have extreme tax benefits at the state level. Do you have any topics that you would like me to cover in future shows? Let me know in the comments below. Don’t forget to subscribe to the show, and if you are enjoying what you hear please leave a review on iTunes. Links and Resources: Top Ten Mistakes to Avoid Making During a Divorce Post Divorce Financial Checklist Post Divorce Financial Tips with guest Heather Locus Repeal of Alimony Law – 75 Years in the Making Merrill Edge 529 Plans 529 Plan State Tax Calculator