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Understanding the 2026 Tax Changes: What Divorcing Couples Need to Know

Writer's picture: HerafinHerafin

Updated: Jan 17

Going through a divorce is challenging enough without having to worry about tax implications. As we approach 2026, significant changes to the tax code are on the horizon that could affect your divorce settlement. Let's break down what you need to know and how to prepare.


The End of the TCJA Era: What's Changing?

(TCJA) brought major changes to how divorce-related finances are handled. With many provisions set to expire in 2026, it's crucial to understand how these changes might affect your situation.


Tax Rates

There are a few important changes to note. The tax rates for long-term capital gains and qualified dividends remained unchanged after the TCJA in 2018 and will stay the same after the tax cuts sunset in 2026. The same applies to the 3.8% net investment income tax (NIIT), which covers dividends, capital gains, passive income, and rents.

The TCJA also changed how capital gains and dividends are taxed by separating their tax-rate thresholds from ordinary income tax brackets for higher-income earners. However, this separation will end in 2026.


Alimony Tax Treatment: A Permanent Shift

One of the most significant changes that won't be reversing is the tax treatment of alimony. Prior to 2019, alimony payments were tax-deductible for the payer and counted as taxable income for the recipient. This shift is permanent – even after other TCJA provisions expire, alimony will remain non-deductible for the payer and tax-free for the recipient.


Standard Deduction Changes

Currently, the standard deduction is significantly higher than pre-TCJA levels:

  • Single filers: $12,000 (up from $6,500)

  • Joint filers: $24,000 (up from $13,000)

  • Head of household: $18,000 (up from $9,550)

Come 2026, these amounts will revert to their previous levels (adjusted for inflation). This could significantly impact your tax planning strategy, especially if you've been using the standard deduction.


Child Tax Credit Considerations

The Child Tax Credit saw substantial expansion under the TCJA, with:

  • Increased maximum credit per child

  • Higher income thresholds

  • Additional benefits for non-refundable credits

As these provisions sunset, families will need to reassess their financial planning, particularly those sharing custody or claiming dependents post-divorce.


Property and Real Estate Implications

SALT Deduction Cap

The $10,000 cap on state and local tax (SALT) deductions will expire in 2026. This could significantly impact divorcing couples who own substantial real estate or live in high-tax states. When dividing property, consider how the removal of this cap might affect future tax obligations.


Mortgage Interest Deduction

The TCJA made two significant changes to mortgage interest deductions that will affect divorcing couples:

  1. Home Equity Loan Interest: For loans taken after December 15, 2017, interest is only deductible if the loan was used specifically to buy, build, or substantially improve the home securing the mortgage.

  2. Mortgage Principal Limits: The deduction is currently limited to interest on the first $750,000 of mortgage principal (down from the pre-TCJA limit of $1 million). However, if your mortgage predates December 15, 2017, you're grandfathered in under the old $1 million limit.

When negotiating who keeps the family home or dividing property with mortgages, consider these limits carefully. They can significantly impact the after-tax cost of maintaining the property.


Charitable Contribution Changes

The TCJA increased the limit on charitable contribution deductions from 50% to 60% of adjusted gross income. This higher limit will expire in 2026, potentially affecting your tax planning if charitable giving is part of your financial strategy.


Strategic Planning Tips

  1. Time Your Settlement Carefully Consider whether finalizing certain aspects of your divorce before or after 2026 could be advantageous based on these changing tax provisions.

  2. Review Your Property Settlement With changing deduction limits and tax treatments, what seems like an equal division now might not be truly equitable after 2026.

  3. Update Your Financial Planning Work with financial professionals to model different scenarios under both current and post-2026 tax frameworks.


Getting Professional Help

These changes are complex and can significantly impact your long-term financial health. Consider working with:

  • A divorce financial analyst who understands these tax implications

  • An experienced tax professional

  • A family law attorney who stays current with tax law changes


Looking Ahead

While 2026 might seem distant, these tax changes could significantly impact divorce settlements being negotiated today. Understanding these upcoming changes is crucial for making informed decisions about your divorce settlement and post-divorce financial planning.

Remember, while this information provides a general overview, every divorce situation is unique. Consulting with qualified professionals who can analyze your specific circumstances is essential for making the best

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