For most, filing taxes is a dreaded task. The complicated maze of IRS regulations makes it difficult for the average American to comprehend. Unfortunately, for those recently divorced or in the middle of a divorce, it is even harder.
An article in Time magazine provides a number of helpful tips regarding the confusing topic of divorce and taxes. Here is what you need to know:
When determining your marriage status, go by the calendar.
Your filing status should be based on the calendar, not the date of your divorce decree. Essentially, if your divorce was finalized between January 1 and April 15, you will be filing as married (either jointly or separately). In contrast, if you get divorced in December, you cannot file as married.
Fortunately, you may be able to file as “head of household” if you qualify. The requirements for qualification include living apart from your spouse for the past six months, paying over half of the cost of your residence, and being able to claim your child as your dependent. Note that you will need to file a separate tax return, even if you are still married.
You may be responsible for capital gains taxes from the sale of your house.
While you do not have to pay income taxes on assets transferred during a divorce, you may not get the house tax-free. You can only exempt half of the marital capital gains tax exemption after your divorce. This means that you will owe capital gains taxes, if you receive more than $250,000 from selling your home after you pay off the mortgage. If you receive a rental property as part of your divorce settlement or the decision by your family court judge, you are facing a potentially complex tax situation and should definitely consult with a tax advisor.
You may not be able to claim your children as dependents.
Where claiming dependents are concerned, taxes can get tricky and will depend on the judgment entered by your family court judge. If you have primary custody of your children, it is likely that only you will be allowed to claim them as a dependent; however, if you and your ex-spouse share custody equally, the option to claim your children as dependents is open to both of you. Note that it is illegal for both divorced parents to claim their children as dependents in the same year. You might consider alternating years or designating certain children as dependents of you or your ex-spouse.
Alimony will affect your taxes.
You can deduct from your taxable income the alimony that you pay to your former spouse. Conversely, if you receive alimony from your former spouse, you will have to report the alimony as income and pay taxes on it when you file your tax return.
Child support does not affect your taxes.
Child support will not affect your taxes in any way. This applies no matter how much the support is or how long it must be paid.
If you are considering or are in the midst of a divorce, you should consult with a financial advisor and an experienced Charleston divorce attorney to avoid tax mistakes.