Tax season is upon us, and if you are going through or considering a divorce, several tax implications are important to keep in mind. While you should always discuss your situation with both a family law attorney and a tax professional, here are some major tax issues to consider during the divorce process.
Filing Status
While your divorce is pending, one of the toughest decisions is choosing your tax filing status. Should you file a joint tax return with your soon-to-be ex-spouse or not? Filing a joint return may result in a lower tax rate, but there are potential disadvantages. For example, by filing jointly, you and your spouse will be jointly and severally liable for all taxes owed. This means that if your spouse fails to pay their portion, the IRS can force you to cover the entire amount. Additionally, if your spouse has any outstanding state or federal taxes, your joint refund could be used to satisfy their tax debt.
If these concerns arise, consider signing an agreement with your spouse on how to handle tax liabilities and refunds before filing a joint return.
Minimizing Capital Gains
When negotiating a divorce settlement agreement, one of the biggest questions is what to do with the marital home. If the home has appreciated in value, capital gains taxes may be owed when it’s sold. According to IRS rules, there is a $500,000 capital gains exclusion if:
- You and your spouse are still married at the time of the sale, or
- The home is still titled in both your names, even after divorce.
However, if the home is only titled in your name post-divorce, the exclusion drops to $250,000. Many divorced couples keep the marital home in both names to take advantage of the $500,000 exclusion, but this may affect your ability to obtain a mortgage on a new residence. It’s critical to discuss capital gains tax considerations with your family law attorney to explore creative options for minimizing taxes.
Attorney’s Fees
Generally, attorney’s fees for obtaining a divorce are not deductible on your tax return. However, under certain circumstances, you can deduct the money paid to an attorney for obtaining alimony or for tax advice related to your divorce. Be sure to consult your divorce lawyer to determine if any fees you’ve paid are deductible.
Final Thoughts
These are just a few of the tax issues to be aware of during a divorce. By considering these factors while negotiating a marital settlement, you can reach a favorable arrangement for you and your family and avoid unpleasant surprises from the IRS.
If you are considering divorce, a qualified family law and divorce attorney can help you maximize tax credits and minimize liabilities. The family lawyers at DiPietro Family Law Group have decades of experience handling family law matters across Northern Virginia, Maryland, and Washington, D.C. Contact us today for a consultation at (888) 530-4374.