January 1, 2019 ushered in a change in alimony tax rules that affected many Tennessee residents. These old alimony tax rules had been in force for more than seven decades.
Prior to the start of 2019, the law stated that alimony payments could be deducted by the individual who paid them, and the individual who received them would be taxed. As of 2019, that changed. Individuals working in the financial field, as well as those working with divorce law, may experience an uptick in their work as individuals attempt to divorce and come up with an agreement prior to the end of the year.
Changes to the tax laws may mean that some divorcing individuals will need to make adjustments to how they engage in financial planning prior to their divorce. This may include factoring in other tax changes.
The Tax Cuts and Jobs Act put in place during the 2018 year presents other changes that could affect taxes and divorce, including home ownership and who will be able to claim children as dependents. For example, mortgage interest inductions that were entered prior to December 15, 2017 were capped at $1 million. Those entered after that date are capped at $750,000.
This means that divorcing individuals would do well to examine the tax benefits they hope to receive when determining whether or not keeping the house is in their best interests. Some divorcing individuals may conclude that holding onto the home may not be worth it.
Some couples may want to investigate alternative forms of payment as opposed to traditional alimony in light of changes to the tax law. A family law attorney may help their clients by representing them during the divorce proceedings. They might draw up documents and give their clients advice on things like property division, asset evaluation, and other practical financial matters.