Before making the decision to divorce, it is wise to consider how divorce will affect your taxes.
My spouse is transferring property to me in our divorce. Will I owe capital gains taxes?
There are no capital gain or loss taxes on property transferred during a divorce. The same is true for property that is transferred after a divorce, as long as the change is done as a part of the divorce proceedings. Each taxpayer should keep track of their cost basis to help reduce capital gains taxes.
Who claims our children as tax dependents after divorce?
Children dependents are typically claimed by the person with whom the child spends the majority of overnights. If you are the custodial parent, then you can claim the dependents, following the Order of Child Support. In mediation, some parents choose to share custody or allow the other parent to claim the child. In this scenario, the custodial parent signs an IRS form for the noncustodial parent to include with their tax returns. We recommend having this form signed when your divorce is finalized. Without it you will not be able to claim the child / children as dependents, even if this is included in the Order of Child Support.
I pay or receive child support. Will I pay taxes on those monies?
Child support is considered post-tax income. They are neither tax deductible by the payer nor tax includable to the recipient.
I pay or receive spousal maintenance. Will I pay taxes on those monies?
Spousal maintenance is considered post-tax income. These funds are neither tax deductible by the payer nor tax includable to the recipient. Specific to spousal maintenance, this applies to divorces settled after 2018.
We sold our home during our divorce. Will we owe capital gains taxes?
It is possible that some taxpayers may owe capital gains taxes on the sale of their home. However, if the home has been used as a primary residence for at least two of the last five years, and there was not more than one sale in the last two years, each taxpayer may claim a sale of home exclusion of $250,000 in capital gains ($500,000, if married filing jointly). Additionally, taxpayers can deduct their cost basis in the home for the purchase price, plus any improvements.
What happens if one spouse has moved out?
The family home is still the primary residence as long as the other spouse remains living at the property.
We are in the middle of a divorce. How should our taxes be filed?
Taxpayers who were still married on December 31 can file as married filing jointly or married filing separately. Taxpayers who were no longer married on December 31 must file as single or head of household. Most couples benefit from working together and filing as married filing joint as a part of their divorce process. Some taxpayers may opt for financial independence even if this results in an increase in taxes owed.
There are some benefits to timing your divorce so that you can file jointly, as taxes can have other implications on your property division. It behooves divorcing couples to become educated, consider their options, and take advantage of their unique tax situation. Your mediator and tax professional can guide you through this complex process.
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