Did you recently get divorced? Have you filed your taxes yet? While those who are new to our blog might be confused by us asking these two questions back to back, some of our more frequent readers likely realize that there is a very good reason why we have brought this up. That’s because, first-time divorcees may not realize that a divorce can have a significant impact on how you file your taxes. And it’s exactly that which we will outline in this week’s post.
The first thing that will impact how you file your taxes is when you get divorced. According to the IRS, you are considered “unmarried” for tax purposes if you obtained your final divorce decree by the last day of the tax year. But things can get complicated depending on if you are seen as divorced or legally separated by the state.
For divorcees with children, it’s important to discuss who will claim the dependency exemption. Before 2009, parents could refer to their divorce agreement for this question. Many times, parents would agree to alternate years when claiming the exemption. But now, divorced parents are required to fill out a special form that gives permission to the non-custodial parent who can then claim the child or children on their taxes. This must be signed by the custodial parent in order to be considered legitimate.
Finally, depending on who got the marital home in the divorce, that person has two options when it comes to their taxes. If they sell the home and are considered married for tax purposes, then they can exclude up to $500,000 of that gain, according to the IRS. But if they file their taxes separately, that amount is reduced by half. Instead, a person might decide to keep the home and take the popular mortgage interest deduction tax credit. This allows a person to deduct most or all of the interest accrued on a mortgage loan.
While these are not the only tax issues a person may encounter after a divorce, they may just be the most common for people across the nation, including here in Arizona. We just hope all of our readers keep these in mind so that they don’t run into problems with the IRS later.
Source: Reuters, “What’s even worse than a divorce? For some, it’s the taxes,” Lauren Young, April 10, 2014