Navigating the financial aspects of a divorce can be hard enough without also worrying about the impact of legislation on your personal financial life. And yet, here we are! At the end of 2025, several provisions of the 2017 Tax Cuts and Jobs Act (TCJA), the most notable tax legislation to pass since the 1980s, are scheduled to expire. Given the number of years in which the TCJA has now been in place, divorced or divorcing individuals may have been lulled into a “new normal”. Few of the expiring provisions directly impact marriage and divorce arrangements (although some do). However, the legislation does impact taxes and financial considerations in many ways, which could have implications for divorcing individuals and those who have already established a post-divorce financial life.
We also recognize 2024 is an election year and the outcome may influence the future course of legislation, including the TCJA. While nothing is set in stone, our tax and financial planning professionals would be remiss if we did not take the time to remind you of some upcoming changes and areas of taxation that will stay the same should nothing change.
Below is a brief overview that touches on some areas that could impact individuals in a post-marital scenario.
Alimony Tax Deduction
Before the TCJA, individuals paying alimony could deduct those payments from their taxable income while recipients had to report alimony as taxable income. The new legislation eliminated the alimony tax deduction for divorce agreements finalized after December 31, 2018. For individuals participating in alimony payments, it is helpful to know that, unlike other provisions of the legislation, this change is a permanent one. In other words, once the TCJA expires at the end of 2025, there will be no reversions back to the pre-TCJA deductibility of alimony payments.
Child Tax Credit
The TCJA expanded the Child Tax Credit by doubling the maximum per child credit from $1,000 to $2,000 (starting with the 2018 tax year) and providing for a $500 nonrefundable credit for children who are otherwise ineligible for the $2,000 credit. The legislation also increased the refundable part of the credit with a maximum limit of $1,400. The TCJA finally expanded the number of families eligible to receive the credit by raising the income threshold level before the credit starts to phase out. While the expanded credits are scheduled to expire with the TCJA, an ongoing dialogue among lawmakers in Washington, DC has led to legislative proposals to extend recent benefits. None has passed yet, but divorced or divorcing individuals eligible to receive the child tax credit would do well to stay current with the situation.
Personal Exemptions
Personal exemptions were suspended by the TCJA. These will return in 2026 when that TCJA provision sunsets.
Itemized Deductions
The TCJA made notable changes to both the itemized and the standard deduction, making some taxpayers reconsider their choice. The standard deduction was increased while many itemized deductions were pulled back including a few notable real estate-related items. May taxpayers who have taken the increased standard deduction may go back to itemizing or may find themselves with a larger tax bill once the provisions expire.
Standard Deduction
The standard deduction was temporarily increased to $12,000 for single filers (from $6,500), $24,000 for joint filers (from $13,000) and $18,000 for heads of household (from $9,550). Many filers who have previously itemized and had deductions below the increased standard deduction amounts have experienced an increased benefit by taking the increased standard deduction.
Real Estate (State and Local)
Taxpaying homeowners have not lost the option to deduct state and local real estate and personal property, but the SALT (state and local tax) deduction was capped at $10,000 from 2018 through 2025, which could impact families benefiting from the larger, pre-2018 deduction.
Mortgage Interest
The TCJA removed the deductibility of interest on home equity loans taken out after December 15, 2017, unless the debt is specifically used to purchase, maintain, or improve the home on which the mortgage is held. The TCJA also reduced the mortgage interest deduction to the first $750,000 of principal. This was formerly $1,000,000. The $1,000,000 limit still applies to those whose indebtedness predates the TCJA, December 15, 2017.
Charitable Contributions
The limit on charitable contribution deductions was increased from 50 percent to 60 percent of adjusted gross income.
Health-related Deductions
Under the TCJA, taxpayers could deduct unreimbursed medical expenses for any amount exceeding 7.5 percent of adjusted gross income, an improvement over the 10 percent that existed prior to 2018.
Although the TCJA impacted other itemized deductions as well (e.g. unreimbursed employee expense deductions, deduction for theft, etc.), the above-mentioned are notable ones for many taxpayers. Divorced individuals developing a financial plan for themselves and their children or who have already established a post-marital plan should note the impact of these expiring provisions after 2025.
Financial Planning During a Time of Legislative Change
Change is a part of life, as the saying goes, and planning (whenever possible) is usually the best strategy for minimizing the turbulence associated with those changes. Given the many TCJA provisions set to expire, working with a knowledgeable financial planner or tax professional can increase the likelihood you will be equipped to navigate significant legislative changes.
Don’t feel you have to go it alone. Contact Jordan Egert from CBM’s divorce financial planning team via our online contact form.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.
