DIVORCED OR SEPARATED TAX ISSUES: IRS Publication #504
This article explains some tax issues and rules that apply if you are divorced or separated form your spouse.
Change Of Address
If you change your mailing address, use Form 8822 Change of Address to notify the IRS.
Note: Be sure to notify the U.S. Post Office and all other parties of your new address.
Change of Name
If you change your legal name, use Form SS-5 Application for a Social Security Card to notify the Social Security Administration.
Note: Be sure your name and social security number on file match your tax return to avoid a delay in the IRS processing your return.
Note: Be sure to notify all other parties of your name change.
Amounts paid as alimony or separate maintenance payments under a divorce or separation instrument executed after 2018 won't be deductible by the payer and such amounts also won't be includible in the taxable income of the recipient.
The same is true of alimony paid under a divorce or separation instrument executed before 2019 AND modified after 2018, if the modification expressly states that the alimony isn't deductible by the payer or includible in the income of the recipient.
Child support payments are not dedutible by the payer and not taxable income to the recipient.
Marital Status For The Year
You marital status for the entire year is determined as of December 31 of that year.
Costs of Getting A Divorce
You cannot deduct legal fees and court costs for getting a divorce.
You cannot deduct legal fees paid for tax advice in connection with getting a divorce and legal fees to get alimony or fees you pay to appraisers, actuaries, and accountants for services in determining your correct tax or in helping to get alimony.
You cannot deduct the costs of personal advice, counseling, or legal action in a divorce.
You cannot deduct legal fees you pay for a property settlement--you can add it to the basis of the property you receive.
You cannot deduct fees you pay for your spouse or former spouse, unless your payments qualify as deductible alimony under the current IRS tax Code
If you have no legal responsibility arising from the divorce settlement or decree to pay your spouse's legal fees, your payments are gifts and you may be required to file a Federal Gift Tax Return with the IRS.
Tax Withholding & Estimated Tax
You will need to update your Form W-4 with your employer to claim proper federal income tax withholding.
If you receive taxable alimony, you may have to make quarterly estimated tax payments to the IRS in ordr to avoid potential IRS penalties and interest charges.
Generally, no gain or loss is recognized on a transfer of property from you to (or in trust for the benefit of):
1-Your spouse, or
2-Your former spouse, but only if the transfer is incident to your divorce.
This rule applies even if the transfer was in exchange for cash, the release of marital rights, the assumption of liabilities, or other consideration.
Exceptions to nonrecognition rule: This rule doesn't apply in the following situations.
1-Your spouse or former spouse is a nonresident alien.
2-Certain transfers in trust.
3-Certain stock redemptions.
Tax Treatment of Property Received
Property you receive from your spouse (or former spouse, if the transfer is incident to your divorce,) is treated as acquired by gift for income tax purposes. Its value isn't taxable to you.
Your basis in property received from your spouse (or former spouse, if incident to your divorce) is the same as your spouse's adjusted basis (i.e. carryover adjusted basis concept).
If the transferor recognized gain on property transferred in trust, the trust's basis in the property is increased by the recognized gain.
Gift Tax on Property Settlements
Generally, a transfer to a spouse who is a U.S Citizen isn't subject to federal git tax because there is an unlimited deduction for transfers to a U.S. Citizen Spouse.
However, a transfer to a Former Spouse isn't generally eligible for a marital deduction, and may be subject to federal gift tax unless the transfer qualifies for on or more of the exceptions allowed.
If your transfer of property doesn't qualify for the exception, or qualifies only in part, you must report it on a gift tax return.
NOTE: IRS Publication #504 contains very detailed information you will want to read on all of the above tax issues.
Sale of Jointly-Owned Property
If you sell property that you and your spouse own jointly, you must report your share of the recognized gain or loss on your income tax return for the year of sale which is determined by your state law governing ownership of proeprty. IRS Publication #544 contains information on reporting gain or loss.
NOTE: As you can see, IRS RULES contain much more details about the tax issues listed here. This article is to give you an overview of various items you will need to be aware of and consider.
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