The Tax Cuts and Jobs Act, which Congress passed in late 2017, may affect the finances of people divorcing in Virginia and around the country. In the past, when divorced parents had one child, they could take turns claiming him or her as an exemption. This will no longer be possible. Instead, there is a head of household deduction, and if there is one child, it can only be taken by one parent.
To take this deduction, the parent must be single, have the dependent living at his or her home more than half the time and pay more than half of the household expenses. This person is also eligible for the Child Tax Credit. The IRS has not provided guidance on whether this will be tradeable, so parents might want to make the divorce agreement flexible in case it can be swapped.
How alimony will be treated for tax purposes is another major change. For divorces that become final in 2019 and beyond, alimony will no longer be tax deductible for the payer. Even though this means that the recipient will no longer have to pay taxes on alimony, experts say it is likely that the change will be to the disadvantage of the recipient. Couples may want to write a flexible agreement in case there are further changes in this law.
People who are considering getting a divorce may want to talk to an attorney about how it will affect their taxes and finances in other ways. Divorce brings other tax implications that have nothing to do with the passage of the TCJA. For example, an IRA distribution must be rolled into another IRA, or it will be taxed. People also may want to think about whether the divorce will leave them in a different tax bracket. These types of factors may affect negotiations over property division.