Divorce can be messy, and the repercussions can echo far beyond the courthouse and the signing of the divorce papers. When it comes time to file for taxes, you might realize that some of your tax papers have changed, and you don’t know how to file after divorce.
We’re going to show you here some of the significant tax implications of divorce in Minnesota. If you still have questions after reading our article, contact an attorney who will provide you with all the information necessary.
How Does Divorce Affect Taxes in Minnesota?
Although taxes can be complicated, divorce only affects a few sections of your tax returns. The biggest areas are in property division, spousal maintenance, and claiming children on your tax returns. Here are the details on each of those areas.
Property Division Effect on Taxes
When a couple separates, their property is often divided. While smaller pieces of the property won’t affect tax returns too much, a couple that sells a house, land, or a car might need to look at their taxes to see how that sale affects their separate filings at the end of the year.
Mostly, a property transferred from one spouse to another cannot be filed as a gain or loss. This is because it is part of a divorce and under particular litigation. If a couple decides to split assets and one spouse takes the house, it doesn’t affect taxes for either person.
However, if the couple sells the house because they can’t maintain it separately, pay the mortgage, or move away, the sale could be taxed. As with regular house sales, an individual can avoid taxes on the first $250,000 of capital gain. For a divorced couple selling a house jointly, each person can receive up to $250,000 before paying taxes.
This is only true if the home or property was a primary residence and was owned and lived in for two years previously. If the couple moved in more recently, they might be able to receive a partial tax break but won’t receive the entire benefit.
Spousal Maintenance Effect on Taxes
Spousal maintenance, also known as alimony, is often paid from one spouse to another. If one spouse is the main breadwinner and the other cannot support themselves, alimony is court-ordered to prevent an ex-partner from receiving an unfair amount in the divorce.
Alimony can be temporary or permanent, depending on the situation. However, alimony is considered part of income and will be taxed as such. This is true according to the IRS, so it also applies in Minnesota. If you receive alimony, you will need to pay income tax on it.
If you are the one paying the alimony, you can deduct your payments as long as your divorce occurred before 2019. If it happened after 2019, you might not be able to deduct your payments. However, you can talk to an accountant to see if your situation is an exception.
In either case, alimony only counts as deductible if it is court-ordered and paid in cash. Any other form of alimony or payments from one ex-spouse to another are considered gifts or business transactions and don’t fall under divorce law.
Child Support Effect on Taxes
Of course, child support is one of the most significant tax write-offs associated with a divorce. If you pay child support but aren’t the parent with custody, that payment does not qualify for a tax write-off. Similarly, the receiving parent will not pay income tax on child support, as it does not count as taxable income.
However, if you still pay for the medical bills or expenses of your child, you can take a tax credit for that (along with your own medical expenses) whether you live with the child or not, as long as you pay the medical bills.
Only one parent can claim a child as a dependent on their taxes. Even if custody is evenly split, the couple will have to agree as to who claims the children at the end of the year. If no agreement can be reached, the court has tie-breaker systems and dispute lawyers to decide where the child will be claimed.
For the most part, the parent who had the child the most throughout the year will be considered the custodial parent. They will claim the child on taxes as a dependent and receive any tax breaks and child tax credits. A non-custodial parent can claim a child only if the custodial parent signs a waiver.
Other Divorce Effects on Taxes
Divorce affects several other areas, such as shared retirement benefits, health plans, and asset transfers. For these, it is generally standard practice to split the benefits in half and separate the funds, giving each ex-spouse half of the tax breaks they would have received during the marriage.
Turn to CJB Law for Tax Guidance During Your Divorce
Although divorce can be messy, the taxes surrounding it don’t have to be. There are several complicated sections of filing for taxes after a divorce, but with proper legal help and tax expertise of an attorney, you can file it all properly and receive the tax benefits you deserve. Contact the legal team at CJB Law today to discuss your case.