Divorce and Tax Rights
After divorce, one of the many things you’ll do differently is filing taxes.
Taxpayer Status
You may have filed your income taxes as “married, filing separately” or jointly during the marriage, but when the divorce is final you will file as an individual or head of household taxpayer status. However, if you were still married as of New Year’s Eve, you and your ex-spouse may elect to file a final joint tax return. In some cases, filing jointly for the final year of marriage may have tax advantages.
Alimony Payments
If you receive alimony or spousal support after divorce, this money is taxable as income. If you pay alimony or spousal support, you are entitled to a tax deduction for the money paid to your ex-spouse.
Capital Gains Taxes
Capital gains taxes may apply to assets you receive in your divorce settlement. This should be kept in mind when negotiating a divorce settlement agreement to avoid tax liabilities. Capital gains taxes are based on the fair market value of an asset after subtracting the cost. Mutual funds, investment funds and other assets may be subject to capital gains taxes at a rate of up to 35 percent. There is a $250,000 capital gain exclusion per spouse for homes, if they are used as a primary residence for at least two of the previous five years.
Claiming Children as Dependents
If children are involved in the divorce process, the divorce settlement agreement should specify which parent will claim the child as a dependent on tax returns. In some cases parents will alternate years, or if there is more than one child, parents may agree to each claim specific children as dependents. Both parents may not claim the same child as a dependent for the same year.
