Divorce affects more than just your personal life—it also impacts your taxes in ways you might not expect. While some tax concerns are obvious, others can catch you off guard if you don’t plan ahead. There are some divorce-related tax questions you may not have considered.
Who claims the kids on tax returns?
If you have children, only one parent can claim them as dependents for tax purposes. The IRS usually grants this right to the custodial parent, but you and your ex can agree otherwise. If the noncustodial parent is claiming the child, the custodial parent must sign Form 8332 to allow it. This decision can affect tax credits and deductions, so it’s worth discussing.
Do you have to pay taxes on alimony?
For divorces finalized after 2018, alimony is no longer tax-deductible for the person paying it, and the recipient doesn’t report it as income. If your divorce was finalized before 2019, different rules may apply. Understanding how your agreement affects your taxes can help you plan for any financial changes.
What happens to shared tax debt?
If you and your ex owed taxes while married, you may still be responsible for that debt after the divorce. Even if your divorce decree assigns the debt to your ex, the IRS can still come after you if your name was on the return. You might qualify for Innocent Spouse Relief if you were unaware of tax issues caused by your former spouse.
How does divorce affect home sale taxes?
If you sell your marital home, you may qualify for a capital gains tax exclusion. Married couples can exclude up to $500,000 in profits from taxes, but single filers can only exclude $250,000. If you keep the house and later sell it, you may owe more in capital gains tax than you expected.
Thinking ahead about these tax issues can save you stress and money. Consider your options carefully to avoid surprises when tax season arrives.