Top 6 Things You Should Know About Divorce and Taxes

Divorce affects every area of life including taxes. If you’re filing taxes for the first time since you were divorced,  this Divorced Fathers Rights guide outlines the 6 things you should know about divorce and taxes.

The Year of your Divorce is What Counts

If you were divorced in January or in December of last year, or any month in between, then you are considered divorced when filing this year’s taxes. That means that you cannot use the “Married Filing Jointly” designation. No matter when your divorce was finalized, you’re considered by the IRS to have been divorced the entire year.

If your divorce was finalized this year, not last year, you can file jointly on your taxes which cover last year.

NOTE: If you were divorced last year, you may be able to use the designation “Head of Household” which has more tax advantages than filing as a single person.  See your tax preparer or a tax attorney for specifics.

Only One of you Can Claim Kids as Dependents

In most cases, the custodial parent claims the children as dependents. This is often spelled out in the divorce decree. It doesn’t matter if you paid 12 months of substantial child support. If you’re not the custodial parent, don’t claim the kids as dependents unless your ex-spouse agrees to the arrangement.

If you have 50/50 joint custody, then only one parent can claim the kids as dependents. If you and your ex have good cooperation, figure out who would have the greatest tax advantage by claiming the kids. And then compensate the other. For example, if you would save $3,000 on your taxes and she would save $1,000, consider claiming the kids and giving her a gift of part of your savings.

Alimony Payments Reduce Taxes

If you’re paying alimony, then the amount you pay comes off the top of your taxable income. That will take some of the sting out of it. However, only the amount of alimony demanded in the divorce settlement can be deducted. If you’ve generously given more, you cannot deduct it.

Child Support Doesn’t Affect your Taxes

Whether you are paying or receiving child support, it is tax-neutral. If paying child support, it doesn’t reduce your taxable income; if you are receiving, it does not raise it.

If you are Paying for it, You Get the Deductions

Even if you are not the custodial parent, you can claim allowable deductions if you’re paying the bills. These deductions include education bills, health savings accounts and other expenditures for the children.

If you Sell the House, Capital Gains Tax Might Be Higher

In these times of depressed real estate values, most people aren’t paying capital gains taxes. But keep in mind that if your home sells for much more than you paid for it, your capital gains exemption is cut in half to $250,000 from $500,000 for married people.

If you need more tips for handling child visitation, child support, child custody issues, how to get legal advice or just need answers on your state laws, please visit the helpful guides on this site.