In the last post, we started to look at some of the tax situations that arise in divorce. Now we continue that discussion with some more things to keep in mind during divorce negotiations, and after.
The IRS looks at the calendar to determine if you are married for tax purposes
If you are filing your 2010 taxes, and you were married then but your divorce was finalized in 2011, the IRS considers you married for 2010 tax purposes. Conversely, if your divorce was finalized anytime in 2010, then you are considered divorced for the whole year, even if you were married until the end of December and you would benefit financially from filing jointly.
There is an alternative status you can claim, which is "head of household." To qualify, you need to have lived apart from your spouse for the last six months of the tax year, you had to pay more than half the expenses of maintaining your primary residence, and, if you have children, you need to be able to claim them as dependents. If you claim head of household status, you have to file separately from your spouse, even if you are still officially married.
Time spent with your children does not mean they are dependents
Pittsburgh divorce attorneys are seeing more and more child custody arrangements that have 50-50 time splits. However, only one parent can claim a child as a dependent. If a court declared one parent the primary custodian, that parent claims the child as a dependent. If there is no designation or there is joint custody, a choice will have to be made which parent claims the child as a dependent.
If there is one child, the parents may take turns claiming the child as a dependent from year to year. If there are multiple children, each parent could claim a different child as a dependent.
Splitting a house is difficult
If you end up getting the house in a divorce, there may be taxes implications. A married couple is exempt from capital gains taxes on $500,000 of gain on the sale of their home. Once you are divorced, though, you are only exempt from half that amount. If you make over $250,000 in profit from the sale of your home, you will owe capital gains taxes. In the current housing market, however, it is unlikely that too many people will have problems of making too much money on the sale of a home.
Source: TIME "Divorce and Taxes: Five Things You Need to Know" 4/6/2011