While the rules for divorced taxpayers have not changed to terribly much in the past few decades, divorce has. Joint custody and other changes in the way people split property have succeeded in making figuring out what is owed to Uncle Sam and by whom harder than ever.
The following are five tips on some of the most confusing topics for those already divorced or contemplating divorce:
1. With regard to marriage status, follow the calendar
Even if your divorce was finalized between Jan. 1 and April 18 this year, you are still officially married to your ex when it comes to filing your 2011 taxes. However, if your divorce became official in December, you cannot file as married even if you were for most of the year and it would save you money. There is yet another option, “head of household,” and it could save you money. The status was originally meant for single people, but some people in the middle of a divorce might qualify as well. To qualify you must have lived apart from your spouse for the last six months of the tax year; paid over half the cost of keeping up your main residence; and be able to claim, under the rules for children of divorced or separated parents, your child as your dependent.
2. Splitting the house is harder than you think
Thankfully no one has to pay income taxes on assets that are transferred during a divorce. But if you end up getting the house, you will not get it tax-free. Capital gains taxes come into apply if you decide to dump your house after divorce. Usually a married couple does not have to pay taxes on a gain of up to $500,000 on their primary residence. Now that you’re single the exemption is only $250,000.
3. Just because you see your kids doesn’t mean they’re your dependents
Recently custody arrangements have become more creative and more equitable. While that’s a great thing for the kids it isn’t always easy for the IRS. Generally, you are allowed to claim the kids as dependents only if you were designated the custodian by court order. When there is no such order or when there is joint custody the custodial parent is the one who has physical custody of the children most of the time. What if it’s truly 50/50? Couples usually have to work out an arrangement where they switch years claiming the children on their taxes.
4. Alimony is good for your taxes
In most cases if you’re paying alimony then it will lower your tax bill. One caveat is that if you and your ex continued to share a residence after the divorce, any alimony payments made during that time cannot be deducted.
5. Child Support is tax-neutral
Child support payments are always tax-neutral, meaning they do not affect your taxes in any way. Size of the check doesn’t matter, it’s important to realize that no matter how big the check, or how long a parent has to write it, the tax-neutral rules still apply.
If you find yourself facing a difficult divorce, separation, or child custody issues, you need the help of an experienced South Carolina family law attorney to guide you through the messy process.
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