Ending a marriage is a challenging and sometimes traumatic experience. So, when you hear that you must also deal with taxes following this incident, you’re anything but happy. There are many tax breaks that get overlooked after a divorce, and it’s a shame given how convenient they can be for the newly divorced.

After calling it quits with your spouse, you must take some taxes into account if you don’t want to deal with any issues. That being said, let’s take a look at the most overlooked tax breaks after a divorce.

Credits for Children

Whether you had a long or short marriage, the relationship might’ve resulted in children. After the divorce, you must go through a long series of challenges, including who will get custody of the little ones.

Once that’s settled, you should be aware that there are credits for children that can be claimed. Now, here’s the rule: only the custodial parent is allowed to claim the tax credit of the child or claim the credit for other dependents for the qualifying kids of a divorced couple.

How much a child has in tax credit depends on their age and the year they’re filing for. So, for 2021, a child tax credit for a 5-year-old or younger is $3,600, whereas a child between 6 and 17 gets $3,000.

Tax Breaks After Divorce

Then, for 2022, a child who is 16 years old or younger will get $2,000 in credit. As for the children who have gotten too old for the child tax credit for either year, they may be eligible for other dependents’ credit. This could be around $500 per dependent.

Although it’s generally the custodial parent that must claim these credits, a noncustodial parent can do this as long as the custodial parent signs a waiver agreeing not to claim any exemption for his/her return or the child.

Every year, the return of the noncustodial parent should come with Form 8332.

Alimony Payments

If you had a divorce agreement before 2018 ended, you will be able to deduct the alimony that you pay to your former spouse. But if the agreement changes after the end of 2018 in order to take away alimony payments from the income your ex-spouse receives, the deduction is lost.

Your divorce agreement must also include cash-only payments if you want to be eligible for deductible alimony. Not only that, but you must also report your former spouse’s SSN.

Filing Status

The filing status is influenced by your marital status as of the last day of the year.

That being said, you can still be married after splitting up before December 31, and you will be allowed to file a joint return. Of course, you also have the option to go for a married-filing-separately status when claiming tax returns for the year you two parted ways.

Another alternative would be filing as head of household in case you and your spouse lived away from each other for the year’s last six months. Also, your spouse must have paid over half of your home’s upkeep, lived dependently with you for over half of the year, and filed separate returns.

Following your divorce, you can either file as a single taxpayer or head of household.

IRA Contribution

One thing some taxpayers qualify for is an IRA contribution. But for them to be eligible, they must have earned income from self-employment or a job. While this is the case, some divorced people are an exception to the rule.

If you get taxable alimony, it will be considered compensation for IRA contribution purposes. You can contribute up to $6,000 to your Roth IRA or traditional IRA for 2022. Also, if you are older than 50, you will be allowed to make an extra $1,000 contribution for the year.

House Sales

Sometimes, two spouses that get divorced decide to sell their home. This can also have consequences in terms of taxes.

According to the law, you can avoid tax only on the first $250,000 you make from the primary home sale as long as you had ownership of the property and lived there for at least two out of the last five years. Meanwhile, married couples that file jointly can avoid tax on the first $500,000.

If the sale is made after a divorce has been finalized, you and your ex-spouse can each avoid tax for the first $250,000 you make on your separate returns. Of course, this also applies only if you met the two-year ownership-and-use tests at the same time.

When the two-year tests have not been met, it’s still possible to be eligible for an exclusion from tax payments. The part of the two-year period for which you had ownership of the home and used it will influence the limit on the tax-free profit.

Child Medical Expenses

There are situations in which a parent still pays the medical bills of the child following the marriage termination. Well, you can include these payments in your medical-expense deductions if you’re in this boat, even if you’re a noncustodial parent.

You should keep in mind that medical expenses can only be deductible if they go past 7.5% of adjusted gross income. However, the bills you pay for the child could make you exceed 7.5%.

Transferring Assets

After a divorce, the property is sometimes transferred from one spouse to the other one. Fortunately, you will not have to pay tax on that transfer.

At the same time, even the tax basis of the property can change. If you decide to sell the property you get from your former spouse in a divorce settlement, you will end up having to pay capital gains tax on each penny of the appreciation, but also after the property’s transfer.

Final Thoughts

A divorce can be very difficult to deal with, especially considering that your tax situation will change. In Colorado, 13.52 people out of every 1,000 got divorced in 2021.

To handle the situation, they sought Denver divorce attorneys. The good news is that there are some tax breaks you can enjoy after the divorce related to payments for the child’s bills, alimony payments, and others.

Most Overlooked Tax Breaks After a Divorce

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