Now that we have explored the effect the new tax law will have on spousal maintenance, we will address the impact the tax law will have on real estate ownership.
In divorces, often one spouse keeps the former marital residence and the other spouse will purchase a new home, or the parties will sell the marital residence and both purchase new homes. The new tax law may have a significant impact.
What is staying the same?
Although the tax bill initially sought to cut back the amount a homeowner may exclude from capital gains tax when selling their primary residence for a gain, that portion of the law will remain unchanged. Homeowners may still exclude up to $500,000 for married couples, and $250,000 for single persons and the seller must have lived in the residence for at least two of the past five years to be eligible for this exclusion.
What has changed?
The new tax law decreases the interest deduction you are allowed to claim if you take out a new mortgage. Under the new tax law, you can only deduct the interest on the first $750,000 of your mortgage. Under the old tax plan, you could deduct the interest on the first $1,000,000 of your mortgage. The new law does not, however, affect current or existing mortgages. Therefore, a party remaining in the marital residence will have the benefit of being able to claim the mortgage interest on an additional $250,000 on their federal taxes over the party that now has to purchase another home.
Going through a divorce and understanding all of the possible effects on your property and assets can be difficult, at best, and may necessitate new strategies and considerations in trying to negotiate an appropriate resolution. Having an experienced attorney to advise and assist you with these issues is essential.
If you would like to work with one of our experienced divorce attorneys, please call OWENS & PERKINS at (480) 630-2464 to schedule your free 30-minute consultation.
Disclaimer: Owens & Perkins is a law firm and we give legal advice, we do not give tax advice. Nothing contained herein should be construed as giving tax advice and we encourage each reader to seek tax advice from a qualified tax professional of your own choosing.