Tax season is in full swing. If you’re newly divorced, you likely have a lot of questions about filing your taxes.
Divorce can certainly complicate an already tricky process. Here are seven frequently asked questions regarding taxes and divorce:
What is my filing status?
For most divorced couples, filing status is determined on December 31.
If you were still married on that day, then you and your spouse can file as “married, filing jointly,” which entitles you to advantages such as exclusion limits for capital gain on the sale of a principle residence.
You can do this even if you live separately and even if your divorce began prior to the end of the year.
But keep in mind, you will be jointly liable in event of an audit
Are attorney fees tax deductible?
Attorney fees are not deductible. But any fees incurred that were related to tax advice surrounding your divorce could be deductible up to the federal government limits. You could also be entitled to deduct attorney fees to obtain taxable alimony.
Even if your divorce attorney isn’t a tax specialist, you may be able to deduct fees paid them for any tax advice. Make sure the fees are denoted on your bill to make it clear the advice was for tax purposes and not counseling related to the divorce.
Who gets to claim child on taxes?
The custodial parent has the right to claim the child as a dependent unless otherwise stated in the divorce decree or settlement.
If parents split time with the child equally, then whichever parent pays child support can claim the tax dependency exemption. If there are no child support payments, then it is the parent with the higher adjusted gross income.
Sometimes, parents will alternate between odd and even years who claims the child.
Parties can agree to other arrangements, but the court can order whatever terms it finds to be in child’s best interests.
Is child support deductible?
Child support is not really deductible. Nor can the payee claim the child support as income.
However, there might be expenses for your children that are deductible such as childcare costs, healthcare expenses, and college tuition and school expenses.
Is alimony deductible?
Yes, alimony is deductible. This is actually one of the benefits of paying alimony.
According to Joseph Cordell, you can deduct alimony payments under four circumstances:
- Your payments are made in accordance to a written agreement or judgment
- When you are not members of the same household, provided that
- The payments are not child support, which is determined, in part, by a three-year payment analysis; and
- They cease upon your ex’s death.
However, if you deduct alimony, make sure to familiarize yourself with the alimony recapture rule.
If there is a modification or termination of your alimony payments during the first three calendar years post-divorce, this tax trap can force you to report those previously deducted alimony payments as income.
How does my 401(k) factor into my taxes if it was divided during the divorce?
If you have withdrawn funds from your account to give to your ex, you will face early withdrawal penalties that are considered taxable income.
You can avoid this by transferring the money under a Qualified Domestic Relations Order (QDRO).
If we recently sold the marital home, how are the profits taxed?
If you decided to sell the marital home, single filers can avoid taxes on up to $250,000 of the profits as long as you have lived in the home in at least two of the past five years. (It is $500,000 for married couples.)
If you think you might profit above either limit you might want to reconsider the timing of your divorce so you can take advantage of these tax breaks.
Furthermore, whichever spouse is granted ownership of the marital home can claim the mortgage interest deductions. If both continue to jointly own the home, then they will split the mortgage interest deduction.