It’s April 15, and some Peoria-area residents may still be scrabbling to meet the dreaded tax deadline. For recently divorced men and women, tax time may present new challenges and surprises. The decision to divorce is typically accompanied by a whirlwind of change. In addition to changes to one’s living arrangements, financial situation and time spent with children; divorce also often signals big changes during tax time.
For individuals who divorced during 2013 or who are planning to divorce during 2014, it’s important to figure out the tax implications that may accompany a divorce. An individual, who was officially divorced on December 31, would be considered single come tax time. In cases where it’s more financially beneficial, however, those individuals can opt to file jointly with an ex-spouse.
For those who do decide to file as single, it’s important to know the Internal Revenue Service’s rules pertaining to claiming dependants, child and spousal support and the tax implications of selling or retaining a previously shared home.
A parent can claim a child as a dependant until the child reaches age 19, or up to age 24 if a child is a full-time student. For each child, an amount of $3,900 can be deducted to reduce one’s tax liabilities. In cases where one parent has physical primary custody of a child, he or she would take the tax deduction. In cases where parents share joint custody, they may decide to alternate who claims the child.
In divorces where spousal and child support are awarded, the spouse on the receiving end is required to claim spousal support as income. Spousal support, therefore, is taxable for the receiving spouse and tax deductible for the paying spouse. On the other hand, child support is not considered income and therefore is neither taxable or tax deductible.
For divorced couples who previously owned a home together, for both financial and sentimental reasons, it can be difficult to decide what to do with that home. The decision of whether to retain or sell a home can also have serious tax implications. Former couples who decide to sell a home will be required to pay capital gains taxes on any profits, whereas a spouse who retains a home can usually deduct any payments made towards mortgage interest.
Source: The Huffingto Post, “4 Things To Know About Filing Your Taxes After Divorce,” April 10, 2014