Tax Tips for People Facing Divorce
If you are recently divorced, or going through a divorce, here are some tips for filing your income tax return. For more information, see these articles from Forbes.com and Time.com.
- When it comes to property distribution, asset transfers between spouses are generally income tax-free as long as the transaction is “incident to a divorce,” takes place within a year, and the recipient of the property is not a “nonresident alien.” However, if you receive the house, you may have to pay some capital gains taxes if your home is over a certain value.
- Alimony is fully taxable as income to the recipient and provides an above-the-line deduction for the payer. To qualify as alimony for tax purposes, the payments must be made in cash to a spouse (or ex-spouse); be pursuant to a written separation or divorce agreement; not be labeled as non-alimony; made in a year that the spouses do not file jointly and do not live together; terminate upon the death of the recipient spouse; and cannot be considered child support.
- Child support is always tax-neutral, meaning it is never taxable to the recipient spouse or deductible by the paying spouse. Do not classify child support payments as alimony―the IRS will go back and recalculate the amount you paid as nondeductible child support and you will be taxed on that previously deducted income. You will also likely face interest and penalties.
- In most cases, you may only claim children as dependents if you are a child’s designated custodian by court order. If you share custody 50-50, you may switch who claims the child from year to year in order to share the tax benefit. If you have more than one child, you may split the dependency of the children so each parent receives an income tax benefit each year.
- In some cases you may claim some of your divorce attorney’s fees as a deduction, but only if you itemize and can prove that your lawyer helped you receive, increase or collect alimony payments. The payments must also exceed 2% of your adjusted gross income.
Seek Supportive, Experienced Divorce Representation in Northern Alabama
If you are facing divorce and all of the potentially complex legal and financial issues that come with it, please contact Lana Hawkins, Attorney at Law, at Hawkins Law LLC for advice and counsel from an experienced Alabama divorce attorney. Serving in Guntersville, Huntsville, Arab, Boaz and Albertville, we represent clients throughout northern and central Alabama, including the Huntsville-Decatur metro area.