Divorce & Taxes--Most Commonly Asked Questions Around this time every year I get a lot of questions about divorce and taxes. Here are some answers to the those commonly asked: 1. Can I deduct spousal maintenance (a/k/a spousal support or alimony) from my taxes? Answer: Yes. 2. If I receive spousal maintenance, do I have to report it as income on my tax return? Answer: Yes. 3. Can I deduct child support from my taxes? Answer: No. 4. If I receive child support, do I have to report it as income on my tax return? Answer: No. 5. Can I deduct unallocated maintenance from my taxes? Answer: Yes. In many cases, a party is ordered to pay both child support and maintenance. If the payor is in a higher tax bracket as compared to the payee, there can a significant tax savings if the payor pays “unallocated support” to the payee instead of separate maintenance and child support payments. Unallocated support does not specifically allocate between child support and spousal maintenance. 6. Which parent can claim the child as a dependent? Answer: Generally, the child is the qualifying child of the custodial parent, and the custodial parent is allowed to claim a dependency exemption for the child if that parent meets the other dependency tests. The parent with whom the child lived for the greater part of the year is the custodial parent for income tax purposes. However, The noncustodial parent may claim an exemption for the child if the custodial parent signs a Form 8332 Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent. 7. What happens if your ex-spouse or soon to be ex-spouse claims the child as dependent on their tax return and you do too? Answer: The IRS will apply the tie breaker rules. If you e-file and your tax return is rejected because someone has already claimed your dependent, call the IRS and inform them of the situation (1-800-829-1040) and mail your tax return to the IRS. The IRS will then be able to apply the tiebreaker rules. The IRS examines both tax returns, applies the tie breaker rules and informs you of the results. The entire process may take 8-12+ weeks. 8. What are the tie breaker rules? Answer: Below are the IRS tie-breaker rules and they are applied in the following order: (a) Relationship Test: If only one of the taxpayers claiming the child is the childs parent, then the child will be the qualifying child of the parent. (b) Residence Test: If both parents claim the child but do not file jointly, then the child will be the qualifying child of the parent with whom the child lived for a longer time during the year. (c) Income Test: If the child lived with both parents for an equal amount of time, then the child will be the qualifying child of the parent with the higher adjusted gross income (AGI). (d) No Parent Can Claim: If no parent qualifies to claim the child, the child will be the qualifying child of the person claiming the child who has the highest AGI. (e) No Parent Chooses to Claim: If either parent qualifies to claim the child, but they choose not to, the child will be the qualifying child of the claiming person with the highest AGI, but only if their AGI is higher than that of either parent (if the parents are married and filing jointly, use one half of their combined AGI). (f) Special Rule for Unmarried Parents: If the parents are not married but lived together with their child all year and the child meets all qualifying tests for both parents, then the parents may decide which parent will claim the child as a dependent. 9. Can I deduct payments I have made for my childs medical bills even if my ex-spouse has custody of the child and claims the dependency exemption? Answer: Yes 10. Do I have to pay taxes on my property settlement? Answer: Generally, there is no recognized gain or loss on the transfer of property between spouses, or between former spouses if the transfer is because of a divorce. You may, however, have to report the transaction on a gift tax return. ***As always, please consult with a knowledgeable professional tax adviser regarding your specific tax situation.*** Need help with a divorce or child custody case? Call me at (815) 505-8571--it would be my pleasure to help you! Disclaimer: The information contained on the Laura M. Hunt, Attorney at Law Facebook page is provided solely for information purposes, and should not be construed as legal advice on any subject matter. Any information contained herein is not intended to be a substitute for legal counsel on any subject matter. No recipients of content from this site, client or otherwise, should act or refrain from acting on the basis of any content included on the site without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issues from an attorney licensed in the recipients’ state. Laura M. Hunt, Attorney at Law expressly disclaims all liability in respect to actions taken or not taken based on any or all contents of this site.
Posted on: Mon, 12 Jan 2015 05:48:55 +0000
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