Pay attention to these tax issues if you divorced in 2019

On Behalf of | Dec 30, 2019 | Firm News |

Once 2019 comes to an end and January is here, many people in Illinois turn their attention over to their taxes. Those planning on filing early will want to make sure they understand any changes to the tax code that might affect them, specifically if they divorced in 2019.

When filing your taxes in 2020, spouses paying or receiving alimony should pay attention. This is because due to the passage of new tax laws, starting now alimony is no longer deductible for the paying spouse. This reverses the previous rule under which paying spouses were permitted to deduct alimony payments and receiving spouses were required to pay taxes on alimony received. This new tax rule applies only to those who divorced in 2019 and moving forward. Those who divorced in 2018 or earlier are grandfathered under the old tax laws.

Knowing that they’ll no longer be able to deduct alimony from their taxes, higher-earning spouses might be more apt to liquidate assets, although this could trigger the capital gains tax. Thus, the removal of the alimony deduction could also affect property division in a divorce as well.

In addition, couples who own income-producing real estate, such as a rental home, that has appreciated over the course of the marriage may find these assets receive more attention during the property division process due to new tax implications. If a real estate portfolio is structured with 1031 compatible Delaware Statutory Trust (DST) funds, that real estate can be sold in the property division process, and the equity in the property can be tax deferred.

Taxes and divorce can be a complicated process. The property kept and spousal support awarded will impact each spouse’s taxes when they file in 2020. Keeping abreast of any changes to the tax code is important, so that those who divorced in 2019 do not incur any unexpected tax consequences.