Divorce is bound to raise significant financial concerns. You could be wondering how to leave a marriage with no money or how a divorce would affect your tax situation. What’s important is to be as prepared as possible for the financial implications that arise in a divorce settlement.
If your divorce settlement was established on or before December 31, 2018, alimony payments are fully tax-deductible for the individual making the payments, whether you itemize them or not.
For tax purposes, alimony payments are effectively not part of the payer’s income. If your divorce settlement was finalized before January 1, 2019, the person providing alimony payments will not be able to deduct the payments from their taxes. In this case, only the person making alimony payments must pay taxes in this scenario.
When you’re married, you had the choice of either filing joint or separate income tax returns. Once you get a divorce, the filing statuses are no longer available to you. This will lead to changing your tax bracket.
Your tax bracket had a good probability of being in the lower tax bracket when you were married but if you divorce, your tax bracket may change to a higher bracket and will result in owing more taxes since you don’t receive the same tax exemption while you were married.
If you and your partner have children together, you may be eligible for a variety of tax credits and deductions. It was simple to claim these tax savings on your shared return as a married couple who filed jointly but if you are divorced you’ll need to somehow figure out which parent is eligible for the savings.
If you sell your home as part of your divorce, you may be able to avoid taxes on the first $500k of gain, but only as long as you meet the two-year ownership-and-use test. For at least two years out of five, ending on the date of the sale, you must have lived in or used the home as your primary residence. Also, you must have owned the property for at least two of the previous five years.
To be eligible to claim for the full exclusion, the sale must be completed before the divorce is finalized. Sales following a divorce may qualify for a reduced exclusion even if you don’t achieve the full two-year residency requirement. You each can exclude $125k of gain if it was one year instead of two.
Can You Write Off A Divorce Settlement?
For divorces finalized after 2018, alimony is not tax-deductible. Normally, a property that is transferred is not taxed. As a result, if you pay money as part of a divorce, you generally will not qualify for a tax deduction.
Resolve Your Tax Bills
If you’ve found yourself in a nasty mess with the IRS, take a deep breath. For taxpayers who may have difficulty paying off an excessive amount of tax debt, there’s a new and improved relief program that consolidates many major relief programs into a one-size-fits-all assistance program. Any issues regarding back taxes, unfiled years, or any other tax-related problems may be solved through one program; the IRS Fresh Start Program!
How Simple Is Qualifying?
Considering that the Fresh Start Program is a federal program, you would think meeting the qualifications may be very difficult, but really, it’s a lot simpler and quicker than you think. Take the following steps in order to find out if you are eligible in as little as 3 minutes.
- Fill out some basic information about yourself and your back taxes here.
- Have a representative reach out to you to discuss your eligibility.
- Go through the enrollment process and finally reduce or eliminate your tax liabilities.