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The potential tax consequences of a divorce

On Behalf of | Jan 29, 2024 | Divorce |

If a Florida judge issued your divorce decree at any point in 2023, it can have a significant impact on your tax return. This is because you are unable to file jointly with your former spouse even if you were married for the majority of the year. Therefore, you may not be able to claim your child as a dependent or avoid capital gains taxes on the sale of a home.

Claiming children as dependents

If you are filing separately from your spouse, you can only claim your child as a dependent if your former spouse doesn’t. Furthermore, whoever claims the child may also be the one who is entitled to the Earned Income Tax Credit (EITC) or other credits available to parents. In the event that you are your child’s custodial parent, you may be able to claim head of household status, which may lower your tax burden.

Capital gains taxes on homes

Individuals who file separately from their spouses can avoid capital gains taxes on up to $250,000 in profits from the sale of a home. However, couples who file jointly can double that exemption to $500,000. Therefore, if you are planning on selling the marital home as part of a divorce proceeding, it may be worthwhile to consider waiting to make the divorce official.

Tax implications of other property transfers

When done in accordance with a qualified domestic relations order (QDRO), you won’t be penalized for transferring money from your 401(k) after a divorce. However, if you simply withdraw the money on your own, you may owe income taxes and pay an early withdrawal penalty. You will also likely avoid a taxable event when transferring other assets per the terms of a divorce decree.

Ending your marriage can have a number of consequences. If your divorce is a relatively amicable one, you and your spouse can discuss any issues that might arise before filing. Learning how to work together during settlement talks can be especially important if you need to coparent after the divorce.