It is important for separating couples to understand the unique tax considerations divorce demands. Though an experienced tax expert can best advise you regarding your unique circumstances, it is valuable for any divorcing couple to keep a few basics in mind.
Filing Status Tax Considerations
Though most people realize that after they are divorced their filing status changes from married to single, some may not realize the time period for which the change applies. The IRS considers newly-divorced individuals single for the entire tax filing year as long as their divorce is finalized before December 31 st. For example, a person whose divorce became final on December 31, 2011, will file as single for all of 2011.
Recently divorced individuals may also want to consider filing as the head of household if they have had a dependent living with them for more than half the year and pay half or more of the costs toward the upkeep of the home. Deciding to file as single or as head of household will have implications for standard deduction amounts and tax brackets, so it is important to seek the advice of a tax expert to choose your appropriate filing status.
Tax Considerations for Dependents, Child Tax Credits and Child Support
After a divorce is final, former spouses will encounter a few new tax rules, several of which pertain to dependents. A parent can claim a dependent child if the dependent lives with him or her for half or more of the year, or if the custodial parent has agreed not to claim the dependent in the divorce decree.
If a parent is able to claim a dependent, he or she is also able to claim any credits pertaining to the child or the child’s education, like the child tax credit or the American Opportunity Credit.
Child support is not deductible by the paying parent, nor is it recorded as income by the receiving parent.
Alimony Tax Considerations
Unlike child support, alimony payments can be deducted by the paying spouse and must be included as income by the receiving spouse. These numbers must match; otherwise the IRS will contact both spouses to fix the problem. Paying spouses do not have to itemize their other deductions to deduct alimony payments, but the payments do need to be paid in cash.
Tax Considerations for the Sale of a Previously Shared Home
If the sale of a shared home was part of the divorce decree, both spouses may be subject to the capital gains tax for any profit made on the home. As long as the home was the primary residence of both spouses and one or both had lived in the home for at least two of the last five years, each spouse can exclude up to $250,000 of the profit made on the home before the capital gain tax applies.
A spouse who is awarded the shared home in divorce proceedings and later goes on to sell it can exclude up to $250,000 in gains from the sale of the home for the year in which the house was sold.
Both divorce proceedings and tax filing can be complex and confusing, so it is important to seek the advice of an experienced divorce attorney and a professional tax preparer when filing taxes for the first time after a divorce. If you or a loved one has questions on how to proceed with any significant legal matter before or after your divorce is finalized, please contact an experienced family law attorney.