What Getting Divorced or Separated Means for Your 2020 Tax Return

Tax Questions and Answers for the Newly Divorced or Separated

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Tax time can bring more headaches in some years than in others. If you've recently separated from your spouse or were divorced, you’re facing a whole lot of issues you haven’t had to deal with before, and you probably have several questions, too. Here are a few tax rules to keep in mind.  

Are You Married or Single?

This question isn’t as black-and-white as it seems on the surface, and it’s important because it can affect your filing status.

Under IRS rules, you’re technically still married if your divorce is not yet final as of Dec. 31, even if you or your spouse filed for divorce during the year. Likewise, if the court issued your divorce decree on Dec. 31, you’re considered unmarried for the whole year and you must file your taxes as either a single person or head of household if you qualify.

It doesn’t matter if you and your spouse have been living separately—you’re still married according to the tax code unless a court order states that you're divorced or legally separated. You’re no longer married and you must file a single return if you’re separated by court order on Dec. 31, not just living apart on your own terms.

You are also unmarried for the whole year under IRS rules if you have obtained a decree of a annulment, which requires filing amended returns for affected tax years within the applicable statute of limitations.

Should You File a Joint Married Return If You're Still Married? 

You have the option of filing a joint married return with your spouse if you're still married, even if you no longer live together. This can be beneficial because—among other things—it makes you eligible for a higher standard deduction when you combine your incomes on the same return. But this isn't really black-and-white, either. 

Your standard deduction is $12,400 in 2020 if you file a separate married return, up from $12,200 in 2019. Keep in mind that the 2019 deduction applies to the tax return you'll file for that year.

This is the same as the standard deduction for single filers.

The standard deduction for those who are married and filing jointly is $24,800 in 2020. The standard deduction for married couples filing jointly for the 2019 tax year is $24,400.

So this works out as something of a wash if you and your spouse earn comparable incomes. If you divide that $24,400 standard deduction by the two of you, that's $12,200 for each of you, the same as you could claim filing a separate return. But if you earn a lot more than your spouse—or maybe he doesn't work at all—that $24,400 can subtract significantly from your taxable income. 

But there’s a downside to filing together, too, particularly if your marriage is on the brink. You become jointly and severally liable for all taxes due when you file a joint return, even on income that your spouse personally earned. This means that if you earned $20,000 and your spouse earned $80,000, the IRS can collect the taxes due on that $80,000 from you if she doesn’t pay them. If she’s less than honest about her income or if she fraudulently claims a credit or deduction, you may be on the hook for these misdeeds, too.

You can deny liability subject to certain rules, but this might be a problem you don’t need when you’re trying to put your marriage behind you, and there's no guarantee that the IRS will agree that you're not liable.

Can You File as Head of Household?

Here's where it gets a little more complicated. You’re not necessarily limited to filing a joint married or separate married return if the IRS says you’re still married. Nor must you absolutely file a single return if you’re technically divorced. You might qualify for another filing status: head of household. And it can be very advantageous.

Filing as head of household allows you to claim a larger standard deduction—$18,650 in 2020, up from $18,350 in 2019—and you can earn more income before climbing into a higher tax bracket. It can also affect your eligibility for certain tax credits. But there are some strict rules. 

You might qualify as head of household even if your divorce isn’t final by Dec. 31 if the IRS says you’re “considered unmarried.” According to IRS rules, this means:

  • You and your spouse stopped living together before the last 6 months of the tax year.
  • You paid paid more than 50% of the cost of maintaining your home for the year.

You must also meet a few other requirements: 

  • You must have a dependent. This would typically be your child, but other relatives can qualify, too. Your dependent must have lived with you for more than half the year, but some relatives, such as your parents, don't have to live with you if you pay for more than half their living expenses. 
  • You must have the right to claim your dependent on your tax return even if you don’t actually do so. Maybe you would have been entitled to claim your child except you gave your spouse the right to claim her as part of your divorce terms. A parent who is entitled to claim a child can transfer her right to the other parent by signing and submitting Form 8332 to the IRS.
  • You must file a separate tax return from your spouse to claim head of household filing status. If you file a joint married return, neither you nor your spouse qualify as head of household. 

Who Gets to Claim the Kids?

Now, about those dependents. The IRS says that only one parent can claim a child on their tax return in any given year.

If you have two children, it’s perfectly OK for you to claim one while your spouse claims the other—in fact, this is somewhat common after separation or divorce. But if you have only one child or you have an odd number of children, you and your spouse can’t simultaneously claim any of them in the same tax year. You'll open yourself up for an audit if you try. 

The IRS has special tiebreaker rules if you and your spouse can't agree on who claims the children. The right to claim a child as a dependent goes to the parent with whom the child lived most during the year, typically the custodial parent. Your child must have lived with you for more than half the year to qualify as your dependent. 

Given that there are an odd number of days in most years, a child almost always lives with one parent at least one more day than the other. But if the child somehow spent an equal amount of time with each of you, the IRS moves on to the second tiebreaker rule: The dependent deduction goes to the parent with the highest adjusted gross income (AGI).

In addition to the tiebreaker rules, you must provide more than half your child's support and she must be under age 19, or age 24 if she’s still a full-time student.

Is It Even Worth Claiming a Dependent Anymore?

The Tax Cuts and Jobs Act (TCJA) eliminated personal exemptions from the tax code when the law went into effect in January 2018. You could deduct $4,050 for yourself, your spouse, and each of your claimed dependents back in 2017, but not anymore...at least not until the TCJA potentially expires at the end of 2025.

So does it really matter anymore which of you claims your kids? Yes, it does.

A whole slew of tax breaks depend on being able to claim one or more dependents.

Remember, you can't qualify as head of household without a dependent. The Earned Income Credit is worth more if you have at least one dependent, and the more, the better. Then there are costs associated with your dependents that can help increase certain tax deductions, such as the medical expense deduction and educational deductions. And this isn't even to mention the Child Tax Credit and the Child and Dependent Care Credit.

So, yes, you'll want to claim your kids if you can.

Can You Deduct That Child Support You’ve Been Paying?

Unfortunately, you can't deduct child support you pay. The IRS takes the position that if you and your ex had remained married and if your family had remained intact, you could not have claimed a tax deduction for money you spent feeding, clothing, and sheltering your children. These are personal expenses, and they’re still considered personal expenses after you divorce.

The child support you pay is for the benefit of your kids, so your ex doesn’t have to claim it as income, either. Nor do your children. Child support is a tax-neutral exchange of money.

What About Alimony?

Alimony is a different story—or at least it was before the TCJA took over.

If you’re paying alimony subsequent to the terms of your divorce or separation decree, the IRS used to see this as income that your ex could spend as she sees fit. It was taxable income to you when you earned it, but as it turns out, you didn't have the use of that money. Therefore, you got to take an above-the-line deduction on the first page of your tax return for the amount you paid. You would not have to pay taxes on this portion of your income, but your spouse would have to claim it as income on her return and pay taxes on it.

The “above-the-line” distinction was important. It meant that you didn't have to itemize to claim the deduction, and itemizing isn’t always to every taxpayer’s advantage. Basically, all your itemized deductions would have to have added up to more than the standard deduction for your filing status or you’d end up paying taxes on more income than you would have to.

The situation changed in 2019 under the terms of the TCJA. Alimony is no longer tax deductible, nor does the spouse receiving it have to claim it as income if it's provided for in a decree that's dated after Dec. 31, 2018.

If the new law is more to your liking, the IRS says you can go back and revise a previous decree by agreement to adopt the new rule—the receiving spouse wouldn't have to claim the money as income, but the paying spouse won't be able to deduct the payments, either.

Can You Deduct the Costs of Your Divorce?

Your divorce attorney has hopefully accounted for all the tax ramifications of the property exchange provided for in your divorce settlement or decree, but agreeing on custody terms and hammering out the alimony order probably cost you a ton in legal fees. Can you deduct those?

Unfortunately, not anymore. You could never deduct fees associated with getting a divorce, nor could you deduct most court costs. But you could deduct fees you paid that were associated with generating income, such as if you had to pay a lawyer to get an alimony order. But this was a miscellaneous itemized deduction, and the TCJA eliminates these from the tax code as well.

It's possible that Congress will renew the TCJA at the end of 2025, but many of these tax breaks could come back if that doesn't happen. In the meantime, however, plan your divorce or separation around no miscellaneous deductions, no personal exemptions, or no tax break for paying alimony.

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