How Should I File My Taxes If I Got Divorced?

Divorce significantly alters an individual’s financial landscape, particularly concerning tax obligations. This includes considerations for filing status, the tax treatment of children, and the financial aspects of alimony and property division.

Determining Your Filing Status

Your marital status on December 31st of the tax year generally determines your tax filing status for that entire year. If your divorce is finalized by this date, you cannot file as Married Filing Jointly. You will typically file as Single or, if you meet specific criteria, as Head of Household. If you are separated but not legally divorced by year-end, the Internal Revenue Service (IRS) still considers you married, and you would generally file as Married Filing Jointly or Married Filing Separately.

Filing as Single applies if you are unmarried or legally separated from your spouse by the last day of the tax year and do not qualify for another filing status. This status typically offers a standard deduction lower than Head of Household.

The Head of Household filing status provides a larger standard deduction and potentially lower tax rates compared to filing as Single. To qualify, you must be considered unmarried on the last day of the tax year and pay more than half the cost of keeping up a home for the year. A qualifying person must also have lived with you in that home for more than half the year.

A “qualifying person” for Head of Household status typically includes a dependent child who lived with you for more than half the year. Even if the non-custodial parent claims the child as a dependent through a specific agreement, the custodial parent may still be able to claim Head of Household status if all other requirements are met.

Married Filing Separately is an option if you are legally married but choose to file separate tax returns. While it allows each spouse to report their own income, deductions, and credits, it often results in less favorable tax implications compared to filing jointly. For instance, if one spouse itemizes deductions, the other spouse cannot claim the standard deduction and must also itemize.

Navigating Tax Implications for Children

Claiming children as dependents after a divorce involves specific rules, as only one parent can claim a child for tax purposes in a given year. Generally, the custodial parent is the one who can claim the child. For tax purposes, the custodial parent is defined as the parent with whom the child lived for the greater number of nights during the year.

If parents have equal overnight custody, the IRS has tie-breaker rules, typically allowing the parent with the higher adjusted gross income to claim the child. If both parents attempt to claim the same child, the IRS will apply these rules to determine who is eligible.

In some situations, the custodial parent can release their claim to the child’s dependency to the non-custodial parent. This is done using IRS Form 8332, “Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent.” The non-custodial parent must attach this form to their tax return to claim the child, as a divorce decree alone is not sufficient for the IRS to transfer the dependency claim.

Form 8332 allows the non-custodial parent to claim certain tax benefits, such as the Child Tax Credit and the Credit for Other Dependents. However, other tax benefits generally remain with the custodial parent. These include the Earned Income Tax Credit (EITC), the Child and Dependent Care Credit, and the ability to claim Head of Household filing status. These benefits are tied to the child’s physical residency and the parent who provides the primary home.

Regarding education credits, such as the American Opportunity Tax Credit or the Lifetime Learning Credit, the parent who claims the child as a dependent generally claims these credits. Therefore, if the custodial parent releases the dependency claim via Form 8332, the non-custodial parent may be eligible to claim education credits, assuming all other eligibility requirements are met.

Understanding Alimony and Property Division

The tax treatment of alimony, also known as spousal support, depends significantly on the date the divorce or separation agreement was executed. This distinction is a direct result of changes introduced by the Tax Cuts and Jobs Act of 2017.

For divorce or separation agreements executed on or before December 31, 2018, alimony payments are generally deductible by the payor and considered taxable income for the recipient. To qualify, payments must be in cash, made under a divorce or separation instrument, and cease upon the death of the recipient. Payments designated as child support do not qualify as alimony and are neither deductible nor taxable.

Conversely, for divorce or separation agreements executed after December 31, 2018, alimony payments are not deductible by the payor and are not considered taxable income for the recipient. This shift applies to agreements finalized after the effective date, and modifications to pre-2019 agreements may also cause them to fall under the new rules if explicitly stated.

Property division incident to divorce generally involves the transfer of assets between spouses or former spouses without immediate tax consequences. Neither the transferring nor the receiving spouse recognizes a taxable gain or loss at the time of the transfer. This non-taxable treatment applies if the transfer occurs within one year of the marriage ending or is related to the cessation of the marriage and occurs within six years.

A key aspect of property division is the “carryover basis” rule. The spouse receiving the asset acquires it with the same tax basis (original cost for tax purposes) that the transferring spouse had. This means any deferred capital gains liability associated with the asset is transferred to the recipient. For example, if a house appreciated significantly during the marriage and is transferred to one spouse, that spouse will be responsible for any capital gains tax when they eventually sell the property, based on the original basis.

Addressing Other Financial Aspects

Legal fees incurred during a divorce are generally not tax-deductible. The IRS considers these to be personal expenses. While there were limited exceptions in the past for fees specifically for tax advice related to the divorce or for collecting taxable alimony, these deductions were suspended by the Tax Cuts and Jobs Act through at least 2025.

The sale of a marital home during or after a divorce has specific tax rules, particularly regarding the Section 121 exclusion. This exclusion allows eligible individuals to exclude up to $250,000 of gain from the sale of a primary residence, or $500,000 for qualifying joint filers. To qualify, the taxpayer must have owned and used the home as their principal residence for at least two of the five years before the sale.

In divorce situations, special provisions apply. If one spouse moves out but the home remains the primary residence for the other spouse under a divorce or separation agreement, the “out spouse” can still count the time their former spouse used the home towards their own use test. This provision allows both former spouses to potentially claim the $250,000 exclusion individually when the home is eventually sold, even if only one remained living there.

Dividing retirement accounts in a divorce requires careful planning to avoid immediate tax consequences. A Qualified Domestic Relations Order (QDRO) is a legal document that facilitates the tax-free transfer of a portion of one spouse’s retirement plan assets to the other. Without a QDRO, direct transfers or withdrawals from a retirement account to a former spouse could be considered taxable distributions to the account holder and potentially incur early withdrawal penalties. A QDRO ensures that the transfer is a non-taxable event, and the receiving spouse typically becomes responsible for taxes only upon withdrawing funds later.

Shared expenses and other deductions after a divorce depend on who pays them and whose name is associated with the expense or property. For instance, mortgage interest and property taxes are generally deductible by the person who is legally obligated to pay them and who actually makes the payments. Medical expenses can be itemized if they exceed a certain percentage of adjusted gross income, and they are typically deductible by the person who paid them.