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DIVORCE AND TAX The child must receive over one half of his support from one or both parents, and be in the custody of one or both parents for more than one half of the year. If there is no agreement or court order otherwise, the custodial parent gets the dependent exemption for any child in his or her custody. However, a custodial parent can agree to sign over the exemption to the other parent, or can be ordered to sign over the exemption as part of a divorce judgment. For a non-custodial parent to claim the dependent exemption, the custodial parent must sign IRS Federal Form 8332. For the tax year 2005, the maximum exemption is $3200 for each qualifying dependent, and phases out, depending on filing status, with individual income over $100,000, and joint income over $200,000. The dependent exemption is valuable to a taxpayer only if he or she actually pays some federal income tax. The child tax credit provides a taxpayer with a credit up to $1000 for each child under 17 years of age. The child tax credit goes to the parent who gets the dependent exemption for the child. A portion of the credit is refundable. The credit phases out as the income amount of the taxpayer increases. Which parent gets to claim child care and medical expenses for a child?Child care credit: A taxpayer can claim a credit up to $3,000 for one child (defined as a dependent under 13 years of age) and $6,000 for two children for child care expenses incurred in working or looking for work. This credit is available to the custodial parent only. The credit phases out as the taxpayer's income amount increases. Deduction for medical expenses for a child: Either parent can deduct medical expenses that he or she paid for a child, regardless of who has custody or gets the dependent exemption for the child. To claim a deduction for medical expenses, the taxpayer must itemize his or her deductions and have medical expenses in excess of 7.5 percent of their adjusted gross income. Which parent gets the education credits for a child?There are many credits available for post-secondary education expenses paid for qualifying dependents. They are available to the parent who gets the dependent exemption for the child. Hope credit: A taxpayer can get a credit up to $1500 per student per year for tuition and tuition-related expenses paid by the taxpayer for a dependent for the first two years of post-secondary education in a degree or certificate program. Lifetime learning credit: A taxpayer can obtain a credit for up to 20 percent of the first $10,000 (or $2000) of qualified tuition and related expenses paid for a dependent. Education deduction: Instead of the two credits above, a taxpayer can claim a deduction up to $4,000 for tuition and tuition related expenses paid by the taxpayer for a dependent, if your modified adjusted gross income (MAJI*) is not more than $65,000 ($130,000 if married filing jointly). If your MAJI is more than $65,000 ($130,000 if married filing jointly) but not more than $80,000 ($160,000 if married filing jointly), your maximum tuition and fees deduction is $2,000. *Your MAJI is your AGI plus the following amounts that may apply to you:
If you do not have any of the above, your modified AGI (MAJI) is the same as your AGI (the amount on Form 1040, line 37 or the amount on Form 1040A, line 22) My divorce is pending and my wife is living with the children in the house we purchased during the marriage. Under our temporary agreement, I pay the mortgage and taxes on the house. If we do not file jointly, can I claim the deduction for the mortgage interest and taxes?You can claim the deductions for the interest on the mortgage and the taxes on the home if you itemize your deductions while filing your tax returns. But the two of you would pay less in taxes overall if you filed a joint return. After divorce, if we sell the house we purchased during the marriage and split the proceeds, what are the tax consequences?If the house that you decide to sell after your divorce is your principal residence, you will not have to pay any capital gain tax from the sale as long as the gain from the sale is less than $500,000 for a joint return and $250,000 for an individual return, and at least one of the spouses occupied the residence for at least two of the last five years before the sale. Do I have to pay taxes owed from joint tax returns filed with my ex-spouse before the divorce?Generally, both parties are liable for the entire tax due on joint tax returns regardless of which spouse earned the income. But, there is an innocent spouse rule, under which the innocent spouse may not have to pay taxes owed on a joint tax return due to reporting errors about which the innocent spouse did not know and had no reason to know. The spouse that does not want to pay the taxes because he or she is the innocent spouse must file IRS Federal Form 8857 within two years of the IRS collection activities. |
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