As we approach the holidays, we realize that the year is nearly over and soon we're going to have to think about filing our taxes.
If you think that your 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 the divorce?" How do you deduct your kids and the costs of your home, which is not yet on the market?
Once you are divorced, you will be filing your taxes differently, beginning with your filing status.
According to the IRS, if you are divorced by Dec. 31, the IRS considers you to be unmarried for the entire tax year.
As a divorced person, you have two possible filing statuses, either single or head of household. Since single is self-explanatory, we're going to address filing as the head of household.
To qualify under this status, you must be unmarried on Dec. 31, and you must have paid more than half of the costs of maintaining your home for the year, plus a qualifying person must have lived with you for over half the year.
It's attractive to file as the "head of household" because the tax brackets are broader than those for single individuals, so it's worth it for you to see if you can file this way.
Can you both claim the children as dependents? Unfortunately, no, only one of the parents are entitled to the dependency exemption for each of the children. Generally, the custodial parent gets to deduct the children.
However, the custodial parent has the option of waiving the dependency exemption. To do this, he or she must sign a release on IRS form 8332, Release of Claim to Exemption for Child by Custodial Parent. In this scenario, the noncustodial attaches the form to their return so they can deduct the kids for that year.
What about the house-related expenses? The answer depends on the terms of the divorce settlement or judgement and the form of property ownership. It is possible after the divorce has been finalized for the home to remain in some form of joint ownership between the former spouses.
In that case, each party is entitled to half the deduction for the taxes and interest. In reality though, this scenario is rare. Usually, the property is transferred to one spouse, and that spouse gets the deductions.
The tax rules after a divorce are multifaceted; we highly recommend that you consult with your CPA or certified tax preparer for further advice.