Tax breaks for life's big events
Dealing with divorce
As with marriage, your filing status is determined on the last day of the tax year. If your divorce is final Dec. 31, then you are considered unmarried for the full year.
One of the stickiest divorce issues is child custody. The parent who has physical custody of the children for most of the year usually gets to claim them as dependents. That means that parent gets the exemption, child tax credit and child care tax credit savings.
One spouse typically is granted sole ownership of the family home. This could, however, pose a problem for the solo owner. When the lone ex sells the property, the amount of profit exempt from capital gains is just $250,000 versus the $500,000 that married filing jointly homeowners can exclude. Because of that, some couples sell the house before they divorce and split the tax-free profits.
Similarly, take into account the cash the recipient partner will net after taxes when dividing other marital assets.
And note that alimony has tax implications for both ex-spouses. It is taxable income to the recipient and can be deducted by the paying ex. Child support, however, offers no tax breaks to the paying ex, as it is not deductible. However, to the recipient it isn't taxable.