Income Taxes and Divorce
There are so many important issues that people deal with while going through the divorce process – child custody and support, property and asset division, spousal support – that some of them sometimes get overlooked. Income taxes are among the issues that divorced couples tend to put on the back burner. However, with only a few short weeks left before the April 15th IRS deadline, there are several key factors that a person currently going through or recently divorced need to remember.
If, as of December 31, 2014, you were still legally married, the IRS still allows you to file “married filing jointly” with your spouse. If your divorce was granted anytime in 2014 and you have children, depending on your situation, you can file “head of household.” Typically, the children must have resided with you for more than half the year in order to qualify for this status.
Once divorced, only one parent can claim a child as a dependent on their taxes. This is one area where having a divorce attorney negotiate your divorce settlement is important, for it is not necessarily who the child primarily resides with who gets the deduction.
If you are the person receiving the alimony, then the IRS considers this taxable income and you must claim it on your tax return. However, if you are the person paying the alimony, you may be allowed to take the amount you paid as a deduction.
Whoever gets the house in the property settlement is the spouse who gets to take the deductions for the interest paid on the mortgage, even if the other spouse is making those payments. However, if both spouses continue to own the home after the divorce, then the mortgage payment interest is split between the two, with each taking half of the amount as a deduction.
Capital Gains on a House Sale
The IRS puts a cap on the amount of profit a single filer can claim at $250,000. A married couple who file jointly puts that cap at $500,000. These are important figures to remember if you are planning on selling your home and expect the profit from the sale to exceed either of those amounts.
Depending on how the negotiations in your divorce pan out, you may be required to give a portion of funds in your 401(k) account to your ex-spouse. However, if you withdraw the funds directly, not only will you face an early withdrawal fee, but the IRS considers the amount you withdraw taxable income and your spouse will be required to pay taxes on it. This can be avoided if you have your attorney draw up a Qualified Domestic Relations Order (QDRO) in order to transfer the funds to your ex-spouse.
If you are considering a divorce, there are many issues to consider. Divorce negotiations can be a complicated process, so it is important to contact an experienced Orland Park divorce attorney at Kezy & Associates to make sure your rights and interests are fully protected during those negotiations.