7 Overlooked Tax Breaks After Divorce That Could Save You Money
Minimize your tax liabiity after your divorce.Getting divorced can be one of the most difficult things a family faces. It comes with specific challenges that tend to bring lots of change — including with finances, and more specifically, taxes.
The good news is that there are some tax breaks you could be eligible for once your divorce is finalized.
1) Filing Taxes Jointly
If you were not divorced or legally separated until after the end of the tax year, you must file that year’s tax return as married, and you may file jointly with your former spouse. Filing jointly might garner a higher standard deduction and access to certain tax credits that may not be available to those filing separately.
2) Head of Household Filing Status
This status offers a higher standard deduction compared to single filers ($20,800 vs. $13,850 for tax year 2023) and potentially lower tax rates. To qualify, you must be unmarried at the end of the tax year, and your former spouse must not have lived in your household during the last six months of that year. In addition, you must have paid more than half the cost of maintaining a home for the year, and your dependent children must have lived with you for more than half the year.
3) Child Custody and Tax Credits
This applies to parents who have dependent children who were under 17 at the end of the tax year and who lived with them for more than half the year. The child tax credit provides up to $2,000 per child. The noncustodial parent may be able to claim this credit, providing the other parent signs a form permitting them to do so.
4) Medical Expenses for Children
As a divorced parent, you may be able to deduct your dependent children’s medical expenses along with your own, to the extent that they exceed 7.5% of your adjusted gross income. The catch is that you must itemize deductions.
5) Padding Your Nest Egg
If the court orders your spouse to split their retirement account assets with you, you can roll the assets into a traditional individual retirement account to defer income tax and avoid a 10% early distribution tax on the money. Alternatively, you can use a qualified domestic relations order to withdraw the funds without paying the 10% early distribution tax, but you will pay income tax on the withdrawal.
6) Capital Gains Tax Exemption
If you sell your marital home and meet owner-occupancy rules, you and your spouse each can exclude up to $250,000 in capital gains on the profits from the sale. You must have lived in the home as a primary residence for two of the last five years to qualify.
7) More Nontaxable Income
If you receive child support payments, you don’t have to report this as taxable income for tax filing purposes. This can mean more money in your pocket without worrying about getting bumped up a tax bracket and owing more income taxes.
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