One of the first tax-related questions that come up during a divorce is whether the couple can or should file their taxes jointly the next time they file. When determining your filing status the IRS looks at the last day of the year. If you are married on December 31 you may choose to file jointly. If you are divorced by December 31 you cannot file jointly even if you were married the rest of the year. If you are employed, remember to update your W2 to reflect any changes to your exemptions. Don’t forget to account for your children if you will no longer be claiming them for tax purposes.
Issues Related to Claiming Dependents
If you and your spouse have a child(ren) together, you will have to decide which of you will claim the dependency exemption for your child(ren) when filing your income taxes. While the default assumption is that the parent that has physical custody the majority of the year will claim the child, the IRS allows divorced parents to mutually agree who will claim the children for tax purposes. In some cases parents might choose to rotate years or each claim a different child, depending on the agreement or judge’s ruling. If you are planning to claim a child who lives with you less than half the year, get a signed IRS Form 8332 to clarify and formally put the IRS on notice of your agreement.
Issues Related to Alimony
Alimony is tax deductible for the person ordered to pay the alimony, and it must be claimed as income for tax purposes by the person who receives it.
Child Support Tax Consequences
Unlike alimony, child support is NOT tax deductible. The person paying support is not entitled to deduct the amount paid from his taxable income, and the parent receiving child support is not required to claim the payments as taxable income.
Capital Gains Taxes Related to the Sale of the Marital Home
The IRS allows individuals to exclude up to $250,000 ($500,000 for married couples) of gains related to the sale of their primary residence. To qualify, the house must be your primary residence and you must live in and maintain ownership for at least 2 of the 5 years preceding the sale.