Taxes Following A Divorce Or Separation

Filing status, claiming dependents and transfer of property are just some of the things divorced couples must consider when filing taxes.

Recent separation and divorce has an impact on California couples' tax returns. The first important distinction to be aware of is filing status. For a separated Orange County couple, husband and wife must file as married, unless they have obtained a final divorce decree or decree of separate maintenance by the last day of the tax year (December 31).

For couples officially married for purposes of tax filing status, there is a choice of filing jointly or separately. Generally, married filing separate is a less favored tax filing status. With the married filing separate filing status if one person itemized, the other must also itemize even if one of the ex-spouses sees no benefit from itemizing. Some credits are also not allowed when filing married filing separate.

If the divorce was finalized prior to December 31^st, then each ex-partner has other options, which include filing as single or as head of household. Eligibility for head of household depends on whether any dependents reside in the home. If a child lives with a parent for at least half the year, that parent may qualify to file as head of household rather than single. Head of household status allows for a larger standard deduction and is likely to result in lower taxes.

Claiming The Children

One potential divorce tax issue is the question of who gets to claim the children. Generally, the divorce decree will spell out who can claim the dependency exemption for the children each year. This deduction is $3,800 per child in 2012; $3,700 for 2011. However, in terms of the child tax credits, IRS rules regarding where the child lived for more than half the year will be controlling.

Higher education tax credits are available under the American Opportunity credit up to $2,500 for tuition and qualified expenses for the first four years of a child's college education. Also, a child's student loan interest of up to $2,500 can be deducted by the parent paying the loan. However, this deduction phases out based on income.

Transfer Of Property

Couples who have a substantial amount of property to split up will be relieved to find that in general the Internal Revenue Service does not consider property transfers due to divorce income.

There are some situations, though, when gift tax is chargeable. To help divorcing couples understand more complex property transfers, a skilled California family law attorney should be consulted.