With divorce comes major financial changes, and they includes taxes. Unfortunately, tax implications persist long after a divorce becomes final. For those who went through a divorce in 2017, here are the main things you need to consider as the April 15 filing deadline approaches.
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One of the first things to determine following a divorce is filing status. If the divorce went into effect by Dec. 31, 2017, then each divorcee should file taxes separately. For couples separated, but not yet legally divorced, there is the option of filing jointly or filing as married filing separately.
Dependent tax deductions
For couples who have children, there are further tax implications when it comes to exemptions and expense claiming. The main consideration is to figure out who is able to claim the child or children.
Usually, the parent who is considered the custodial parent claims the dependent child. According to the Internal Revenue Service, the custodial parent is the parent with whom the child lives for the longest period of the year. Yet the non-custodial parent can claim an exemption for a dependent child if the custodial parent signs a waiver.
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According to the IRS, the parent who claims the dependent exemption can also claim the child credit and the American Opportunity higher education credit.
Another consideration for dependent tax deductions are medical bills. The parent or guardian who pays the child’s medical bills can include these costs in the medical expense deduction even if he or she is not the custodial parent.
The spouse paying alimony can take a tax deduction for the payments, while the spouse who receives the alimony must pay income tax on the amounts. With child support payments, the recipient doesn’t pay income tax but the payer doesn’t get a deduction.
The taxation of assets is complicated. Much of the tax burden of assets should have been settled during the divorce, such as the tax burden from selling jointly owned assets, but it is important to note that if assets are divided rather than sold, and the ex-spouse who holds ownership decides to sell the asset down the road, he or she may have to pay capital gains taxes if there is a profit.