Tax Filing Status Following Divorce Your marital status as of December 31 controls your filing status so if you and your spouse are not yet divorced by the deadline you can file a joint return, which will likely save you money. Alternatively, if you had a dependent living with you for more than half the year and you paid for more than half of the upkeep for your home, you can file as a head of household after your divorce and take advantage a larger standard deduction and softer tax brackets.
Tax Treatment When You Have Children in a Divorce As a general rule, the custodial parent claims qualifying children as dependents on the tax return. However, it is legal for the noncustodial parent to claim a son or daughter as a dependent if the other parent signs a waiver agreeing not to claim the same child on his or her return. This is especially helpful if the noncustodial parent is in a higher tax bracket and also allows him or her to claim the child credit and any college credits.
If you continue to pay a child’s medical bills after the divorce, you can include those costs in your medical-expense deductions even if your ex-spouse has custody of the child and claims the dependency exemption. The child’s bills you pay could push you over the 10% adjusted gross income deduction threshold (7.5% of AGI if you’re 65 or older) that applies to most taxpayers when it comes to writing off medical expenses.
Tax Considerations When Dividing Property When dividing property in a divorce, the up side is that couples do not pay taxes when transferring property to one another. However, when deciding on who gets what, it is important to consider the tax basis and the value of the property or you may end up straddled with tax you did not count on. For items such as stock, you will pay capital gains tax on all the appreciation before as well as after the transfer when you decide to sell. Dividing property accordingly, will keep things even-stephen.
If you are concerned about capital gains tax on your principle residence, the IRS gives homeowners a huge break when they sell their homes for a profit. If you’ve lived in your home for two out of the last five years and sell, you can exclude $250,000 in capital gains profits from the sale with regard to tax - 500k if you are married. If you keep the family home as part of your divorce settlement, you can carry over your 250K exclusion and apply it to the sale of the home down the road.
Alimony Tax Treatment Although legal fees associated with a divorce are not deductible when it comes to tax time, if you have paid alimony to your ex-spouse, you may be able to deduct it as a miscellaneous expense. On the other side of that coin, the recipient of the alimony will have to pay taxes.
Contact an Experienced Family Law Attorney If you have questions regarding divorce, marital property division, child custody or visitation, alimony or other family law issues, contact the Law Offices of Andrew C. Ladd LLC for help. We have more than 30 years of experience helping our clients come to fair divorce solutions. We know the issues you are facing, and we know how to protect your interests throughout the Wisconsin divorce process. Contact us today!
