Impact on Divorce Taxation Issues of the Taxpayer Relief Act of 1997

The Taxpayer Relief Act of 1997 affects how taxes are handled during a divorce. It changes how assets are valued and how capital gains are taxed. It also provides tax credits for having children, and waives penalties for early withdrawals from retirement accounts for certain expenses. When dividing marital assets in a divorce, it’s important to consider the potential tax consequences of selling those assets in the future. While Florida courts usually don’t factor in these potential taxes, there have been cases where they do. So, it’s important for lawyers to calculate the potential tax burden for all marital assets. The Taxpayer Relief Act of 1997 also made significant changes to capital gain rates and holding periods, which can affect the taxes on asset sales. Additionally, the Act changed the tax treatment of selling a principal residence. The tax law now lets anyone, no matter how old, exclude up to $250,000 of profit from selling their main home, as long as they owned and lived in it for at least two years in the last five years. This doesn’t have to be continuous, just a total of two years. If you used to follow the old law, you can add the time from your old home to your new one for this rule. If you and your spouse own a home and are filing taxes together, you can exclude up to $500,000 of profit from the sale of your home from your taxes if you meet certain conditions. If only one of you meets the conditions, you can still exclude up to $250,000. If you and your spouse have separate homes, one of you can still exclude up to $250,000 if you meet the requirements. You can use this exclusion once every two years. If you or your spouse got a home in a divorce, you can count their ownership towards the two-year ownership requirement. If you claimed a smaller exclusion before, it won’t prevent you from claiming a larger one now if you meet the requirements. The new law helps divorced spouses by allowing the “out” spouse to get relief even if the house isn’t sold for three years. There’s also a child tax credit for parents with dependent children, but only the custodial parent can claim it unless they give the noncustodial parent a waiver. The credit is $400 for 1998 and $500 for later years, but only for children under 17. If a parent has three or more qualifying children, there are extra benefits available. The child tax credit starts to decrease when your income is over a certain amount. It can get complicated, especially for low income people. The right to claim a child as a dependent for tax purposes will be fought over more because of this.

If you need money for college or to buy your first house, you can take money out of a retirement account without paying a penalty. But you still have to pay regular taxes on the money you take out. The new law has gotten rid of the extra taxes that were imposed on taking out too much money from retirement accounts. Now, a spouse with a lot of retirement savings can’t use the tax as an excuse to not share the money with their ex-spouse after a divorce. This can help provide the money needed to follow the rules of the divorce agreement. This is a legal document about divorce and taxes. It was written by a lawyer who specializes in family law. He has written a book about how taxes are affected by divorce. The lawyer has been recognized for his work in family law and is an expert in the field. This column is written by the Family Law Section. Their goal is to teach its members about serving the public, making the legal system better, and improving the study of law.

Source: https://www.floridabar.org/the-florida-bar-journal/impact-on-divorce-taxation-issues-of-the-taxpayer-relief-act-of-1997/