Atlanta, GA- The deadline to file 2013 Federal income taxes is Tuesday so if you are like millions of Americans you will probably spend your weekend scrambling to get all your documents together and filling out the relevant forms. Many things impact the forms you file and how much you will have to pay or what kind of refund you can expect. If you went through a divorce last year, you need to understand what affect that will have on your taxes.
The first tricky part of filing taxes after divorce is determining your filing status. Some couples assume that if they were married for the majority of the year, they can still file jointly. That is not the case however and your marital status at the end of the year determines how you file taxes. Even if you were not officially single until December 31st, you must file separately from your spouse.
Divorce means dividing up assets like the marital home, property, savings accounts, etc. The most valuable asset most couples have is their home and in divorce either one party retains possession of the home or they decide to sell. When a couple decides to sell their home, they can claim up to a $500.000 gain on their home. But after divorce that is cut in half; a single person can only claim a gain of $250,000.
When one party retains ownership of the marital home, they can claim an often used tax credit- the mortgage interest deduction. With any mortgage loan, a portion of your monthly payments are applied to the principle of the loan and a portion is paid towards the interest on the loan. The amount paid towards the interest is tax deductible. This can mean a huge tax bill for one of the parties and a huge break for the person who is awarded the home.
Child custody is also a tricky area of filing taxes post-divorce; deductions for dependent children are significant– $3,900 for each child. But claiming this deduction requires you prove who has the right to claim a child as a dependent. Before 2009, a couple could determine in their in their divorce decree who can claim a child but that has changed.
In order for party to claim a child as a dependent the child must live with them for at least six months out of the year. They must also file a “Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent,” of IRS Form 8332. This form must be signed by both parents; the one who has custody and the one who doesn’t.
If one spouse is has been awarded alimony or child support they need to be aware that that is considered income and you will have to pay taxes on it. On the other hand, the person who pays alimony or child support can deduct the payments they make from their tax bill.
These are just a few things you must consider when filing your post-divorce federal taxes. Taxes are one of the last things couples consider when they divorce, but it can have a big impact on their finances. When you are hashing out your divorce settlement, it would be wise to discuss with your divorce attorney how the decisions you make will affect your federal income taxes.