As we enter into the holiday season, it reminds us that soon it will be New Year’s and once again, time to file our taxes. Naturally during this time of year, our clients have questions about how divorce impacts their tax obligations.
If you’re getting divorced and the divorce will be final before the end of the year, you’re probably wondering, “What do I need to know about filing my taxes after a divorce?” Also, who gets to deduct the children, and the costs of the family home, which is not yet for sale?
Once you are divorced, the way you file taxes is going to change, beginning with your filing status.
According to the IRS, if you’re divorced by Dec. 31, as far as the agency is concerned, you’re considered unmarried for that year. For example, if you’re divorced by Dec. 31, 2015, then for tax purposes, you’re unmarried for 2015.
As a divorced person, you have two possible filing statuses: 1) single, or 2) head of household. Since the single filing status is self-explanatory, what we’re interested in is the “head of household” status, which is usually more favorable.
A divorced spouse qualifies for this status if they meet the following:
- They are unmarried on Dec. 31st.
- They paid over half the costs of keeping up the marital residence for that year.
- A qualifying person lived with them in the family home for over half the year.
The head of household status is especially appealing since the tax brackets are broader than those for singles, thus, it’s worth finding out if you can file as the head of household.
Can you both deduct the kids? No, unfortunately only one parent is entitled to the dependency exemption for each of the children.
Usually, it’s the custodial parent who gets the exemptions, however, a custodial parent has the option of relinquishing the exemptions if they choose to sign a release on IRS form 8332, Release of Claim to Exemption for Child by Custodial Parent. When this route is taken, the noncustodial parent attaches this form to their return.
What about deductions for the house?
As far as deducting expenses relating to the family home, the terms of your divorce settlement or judgement, and the form of property ownership dictates this.
Sometimes after a divorce the home remains in some sort of joint ownership between the former spouses. In that case, each party would be entitled to half of the deduction for interest and taxes. More often than not though, the house is transferred to one of the spouses, who gets the full deductions.