Filing Taxes after a Divorce in Colorado: A Complete Guide
- Steps for filing taxes in Colorado after a divorce
- How to determine your tax filing status after divorce
- Custodial parent designation
- Child support, spousal support, and implications on taxes in Colorado
- Division of assets
- Tax credits
- Changes to health insurance
- Legal fees and settlements
- Warning about changes of name
- Different ways to file your taxes after a divorce in Colorado
Filing your taxes after a divorce can be intimidating, but often, the process is very similar to what it was before a divorce. Some things that might change include your filing status, whether you can claim dependents on your taxes and some of the credits and deductions you qualify for.
Divorcing parties might need to pay significant capital gains taxes in the first year of their divorce if valuable property was sold. However, divorcing parties can often get a significant exclusion on selling a property that served as their home for at least two years.
Steps for filing taxes in Colorado after a divorce
Filing your taxes after a divorce in Colorado is going to be similar in many ways to how you filed while married. You will first want to collect all necessary documents, including W-2s from your employers, 1099 forms for any other income you’ve received, and 1098 forms for mortgage interest deductions.
You will also need to have relevant identification information available, such as your Social Security number, and records of any tax credits or deductions you might be owed, such as from education expenses or charitable donations.
The Colorado Department of Revenue has forms available by tax type that should be helpful when filing with the state, and the IRS has a large pool of resources designed to help make tax filing of all kinds easier. Most people will focus on filing individual taxes, where the process is fairly standardized. However, business owners and the self-employed will need to research the specifics of filing those types of taxes to make sure everything is submitted correctly.
Once you have the necessary documents prepared, you will usually want to find tax preparation software that works for your needs. Many people can use IRS Free File, which allows qualified taxpayers to file federal income tax returns online for free and, sometimes, file their state taxes, too. Alternatively, you might hire a tax professional to help you file your taxes.
After your taxes have been prepared and filed, the documents will be processed. Assuming there are no issues and you qualify for a tax refund, you will either be sent a check in the mail for your refund or have the money directly deposited into an account.
How to determine your tax filing status after divorce
When filing your taxes after a divorce, you will need to determine if your tax filing status has changed.
If your divorce was finalized before the end of the year (meaning you were divorced by December 31st of the tax year), then you will file your taxes for that year as single (or head of household, if you qualify). An unmarried individual counts as the head of household if they have a dependent child and if they pay for more than half of the household expenses.
If a divorce wasn’t finalized by December 31st for a given year, then an individual still files as married for that year, even if they were going through the process of getting a divorce in that year.
Custodial parent designation
If a divorced couple has children, both parents cannot claim the children as dependents on their taxes. Generally, the custodial parent is the one who can claim children as dependents. A custodial parent is the parent the children live with for a greater number of nights during the year.
While a parent’s status as a custodial parent often doesn’t change year to year, it can. Additionally, the right to claim children as dependents is sometimes assigned as part of a divorce decree. It might be decided that it alternates between parents depending on the year.
If you’re unsure whether you can claim your children as dependents on your taxes, you should speak with a tax or legal professional.
Child support, spousal support, and implications on taxes in Colorado
As of January 1, 2019, child support payments and spousal support (also termed spousal maintenance and, colloquially, alimony) payments aren’t typically considered deductible by a payer at the state or federal level. Receiving such payments isn’t considered receiving taxable income, either. This is due to the Tax Cuts and Jobs Act of 2017, which made a variety of relatively radical changes to the U.S. tax code.
Read: How 2017’s Tax Bill Changed How Alimony Is Taxed, by transitional financial planner Mark Flowers
Division of assets
Property transfers resulting from a divorce settlement aren’t generally taxable. The property in question goes from being considered owned by the married couple to instead being owned by one of the divorced parties. However, there can be tax implications that result from selling assets in a divorce, as is often done with property so couples can split the value of that property.
Selling marital and individual property may cause a person to need to pay capital gains taxes. However, there is an important exception. In many cases, divorcing couples selling their homes can exclude the first $250,000 of gain from the sale of their home from their income, with the exclusion being increased to $500,000 for a married couple filing jointly.
The home must have been lived in by you and owned by you for two of the five years before its sale. The period in which you owned the home and lived in it will often overlap, but they don’t necessarily need to for you to qualify for this exclusion.
Suggested: Capital Gains Tax on the Sale of Your Home after Divorce, by divorce real estate expert Chris Freemott
To qualify, one needs a qualifying child with a Social Security number. A child must meet these criteria:
- They are under 17 at the end of the year.
- They are your child, eligible foster child, stepchild, brother, stepbrother, half-brother, sister, stepsister, half-sister, or a descendant of any of these.
- They provide no more than 50% of their own financial support throughout the year.
- They resided with you for more than 50% of the year.
- They qualify as a dependent on your tax return.
- They have not filed a joint return with their spouse for the tax year (unless they filed to claim a refund of estimated tax paid or withheld income tax).
- They are a citizen, U.S. national, or resident alien.
Many divorced individuals can also qualify for an Earned Income Tax Credit (EITC), a credit designed for low- to moderate-income individuals. The rules to qualify for this tax credit are generally pretty basic. You primarily need to have worked and achieved an earned income under $63,398 while also having an investment income below $11,000.
While a deduction and not a tax credit, it should be noted that if you qualify as a head of household, you may also benefit from a higher standard deduction.
Changes to health insurance
Divorce often leads to changes in health insurance that may potentially qualify you for a premium tax credit. The IRS provided a free online tool to help individuals see whether or not they qualify for this tax credit.
Legal fees and settlements
Most legal fees incurred as a result of getting a divorce aren’t considered tax deductible. There is, however, an exception. Legal fees related to spousal support or obtaining taxable income are often deductible.
Warning about changes of name
Many people who get a divorce decide to change their name. To avoid any legal issues or delays, make sure your name change is fully addressed when filing your taxes. It should match the name on your Social Security card.
Failing to go through the necessary steps to update all your identifying documents regarding your name change could cause issues with the IRS and your tax filing.
Different ways to file your taxes after a divorce in Colorado
Colorado allows people to e-file their taxes or mail them in. E-filing is generally considered faster. It is increasingly the preferred way of filing taxes but, mailing them in also remains an option.
If you’re planning a divorce in Colorado, we invite you to check out these helpful links:
ReferencesForms By Tax Type. Colorado Department of Revenue.
Get Ready to File Your Taxes. Internal Revenue Services.
IRS Free File: Do Your Taxes for Free. Internal Revenue Services.
Filing Taxes After Divorce or Separation. Internal Revenue Services.
Tax Cuts and Jobs Act of 2017 (TCJA). Cornell Law School.
Publication 523 (2022), Selling Your Home. Internal Revenue Services.
Credits and Deductions for Individuals. Internal Revenue Services.
Who Qualifies for the Earned Income Tax Credit (EITC). Internal Revenue Services.
Am I Eligible to Claim the Premium Tax Credit? Internal Revenue Services.
Spousal Support. Colorado Law Help.
Divorce. Colorado Judicial Branch.
Colorado Divorce. WomensLaw.org.