How to File Taxes if You Are Getting Divorced

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on March 05, 2024

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Determine Tax Filing Status if You Are Getting Divorced

The process of getting divorced can be overwhelming, with the myriad of decisions to be made and paperwork to be filed.

Among these considerations is determining your tax filing status. The Internal Revenue Service (IRS) has specific guidelines on how individuals going through a divorce should file their taxes.

Single vs Married Filing Separately: Understanding the Differences

Choosing between filing as single or married filing separately depends on the specifics of your situation.

Criteria for When You Can File as Single

If your divorce is finalized by December 31st of the tax year, you will file as single. This means that for the entire year, even if you were married for 11 months and divorced on the last day, you're considered single for tax purposes.

Criteria for When You Need to File as Married

If your divorce is not yet finalized by the end of the year, the IRS considers you to be married. In this scenario, you have two options: file jointly or choose the status of married filing separately.

Head of Household: Benefits and Eligibility Requirements

Filing as a Head of Household can offer more tax benefits than filing as a single or married filing separately.

To qualify, you must be unmarried or considered unmarried on the last day of the year, pay more than half the cost of keeping up a home, and have a qualifying person (like a child) live with you for more than half the year.

Effect of Divorce Decree Date

The date when your divorce is finalized plays a critical role in your tax filing status. As previously mentioned, if your divorce is finalized by December 31st, you file as single. However, if it's finalized on January 1st or later, you need to file as married for the preceding year.

Understand the Tax Implications of Dividing Assets if You Are Getting Divorced

Real Estate and Primary Residence

If you decide to sell your marital home during the divorce, you need to consider capital gains taxes. Married couples can exclude up to $500,000 of gain, while single filers can exclude up to $250,000. It's essential to understand how this works to avoid unexpected tax bills.

When one spouse transfers their interest in the marital home to the other as part of the divorce, this is typically not a taxable event. However, if the home is later sold, the receiving spouse might have to pay more capital gains tax.

Retirement Accounts: Rules and Implications

Dividing retirement assets can be tricky. Generally, a document called a Qualified Domestic Relations Order (QDRO) is required to split 401(k)s and pensions without incurring penalties. IRAs don't need a QDRO but do require following specific rules to avoid taxes.

Early withdrawal from retirement accounts can result in hefty penalties. It's crucial to follow the necessary procedures, like obtaining a QDRO, to avoid these penalties.

Investments and Stocks

Tax implications can arise when transferring or selling investments. It's essential to understand the cost basis of these investments and any potential capital gains or losses.

Alimony and Maintenance

With recent changes in tax laws, alimony has seen shifts in how it's treated tax-wise.

Previously, alimony payments were deductible for the payer and taxable income for the recipient. However, for divorces finalized after December 31, 2018, alimony payments are no longer deductible for the payer and are tax-free for the recipient.

If you're the recipient, you no longer need to report alimony as income if your divorce was finalized after 2018. If you're the payer, you can't deduct these payments.

Understand Tax Implications for Asset Division

Consider Tax Credits and Deductions if You Are Getting Divorced

Understanding tax credits and deductions available can significantly impact your tax bill during a divorce.

Dependency Exemptions

Determining which parent claims the children is a significant decision. This choice can affect eligibility for various tax benefits.

The child tax credit offers a substantial deduction. To claim it, the child must live with you for more than half the year, and you must provide more than half of their support.

Education Credits

If you're paying for your child's education, you might be eligible for education credits like the American Opportunity Credit or the Lifetime Learning Credit.

Medical Expenses

When it comes to medical expenses, understanding how to split and claim them between both parents is crucial. This includes health insurance premiums and out-of-pocket expenses.

Mortgage Interest

If you and your ex-spouse jointly own a home, you'll need to decide how to split the mortgage interest deduction. The deduction typically goes to the person who makes the payment.

TITLE: Tax Credits and Deductions if You Are Getting Divorced

Special Considerations of Filing Taxes if You Are Getting Divorced

  • Name Changes: If you change your name after a divorce, it's essential to report this change to the IRS and the Social Security Administration to avoid potential complications with your tax return.

  • Tax Debt and Joint Returns: If you filed joint returns in the past, you might be jointly liable for any tax debt. This means the IRS can come after either spouse for the full amount.

Innocent Spouse Relief: If your spouse understated tax or claimed improper deductions, and you were unaware, you might qualify for Innocent Spouse Relief. This provision can protect you from being held liable for the understated tax.

Special Considerations of Filing Taxes if You Are Getting Divorced

Working With a Tax Professional if You Are Getting Divorced

Considering the complexities of divorce and the myriad of tax implications, seeking advice from a tax expert is invaluable.

A tax professional can offer guidance tailored to your unique situation, ensuring that you comply with tax laws and optimize potential savings.

Every divorce is unique, and a tax expert can help decipher the nuances of asset division, deductions, and credits that apply to your specific circumstances.

Bottom Line

In the midst of a divorce, understanding tax implications is paramount. The finalized date of your divorce dictates your tax filing status, with a December 31st cutoff distinguishing between single and married statuses.

Notably, selling a marital home introduces capital gains considerations, where exclusions vary based on your filing status.

The treatment of alimony has also evolved; for divorces post-December 31, 2018, alimony isn't deductible for the payer and isn't taxable for the recipient.

Child-related deductions and credits, particularly the child tax credit, necessitate clear agreements or court decisions, as only one parent can claim.

Additionally, post-divorce name changes should be reported to both the IRS and the Social Security Administration to avoid tax return complications.

Given these intricacies, consulting a tax professional is indispensable, ensuring personalized guidance tailored to your divorce's unique financial landscape.

How to File Taxes if You Are Getting Divorced FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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