How to File Taxes after a Divorce in New York

• Steps for filing taxes in New York after a divorce
• How to determine your tax filing status after divorce
• Custodial parent designation
• Child support, alimony, and implications on taxes in Indiana
• Division of assets
• Tax credits
• Legal fees and settlements
• Change of name
• Different ways to file your taxes after a divorce in New York
• References
  
  Filing taxes after a divorce in New York is often less complicated than you might expect. While your tax status might change, most of the rules about what you need to report and what you can claim as deductions or credits remain the same. Areas to pay close attention to include whether you can claim your children as dependents and whether you might need to pay capital gains taxes on the sale of something large, like your marital home.

Steps for filing taxes in New York after a divorce

To file taxes in New York, first select the method by which you intend to file. Many people file for free using a tool provided by the IRS. Others choose to use paid tax software or the services of a tax professional. You can also file on your own by filling out all paperwork yourself, though this can be fairly difficult due to the complexity of the U.S. tax system.

Much of how you will file remains the same after a divorce. You will still need to collect the necessary documents to prove your income and any relevant information about deductions you qualify for. These documents include W-2s from employers, 1099 forms for other income, and 1098 forms for mortgage interest deductions. You will also want proof of things like your education expenses and any charitable donations you made.

How to determine your tax filing status after divorce

To determine your tax filing status, consider when your divorce was finalized. If your divorce wasn’t finalized in a given tax year, you will file as married for that year, even if you were going through the process of getting divorced that year. If your divorce was finalized at any point on or before December 31st of that tax year, you will default to filing as single. 

The IRS offers a free tool to help you determine your tax status. This is worth looking at if you’ve recently gotten divorced. 

Some people will qualify as a head of household after their divorce. This is typically a more desirable status in terms of your tax burden. Eligibility for a head of household status requires that a dependent is living with you and that you paid the majority of a household’s expenses for the year you intend to claim the status. 

Custodial parent designation

The parent with whom shared children lived for a greater number of nights during the year can usually claim their children as dependents. This is the custodial parent, meaning they have primary custody over the children. You might be a custodial parent even if your children spend a significant portion of the year with their other parent.

Notably, only one parent can claim a child as a dependent in a particular tax year. By default, this is the custodial parent. However, some divorced parents specify a different arrangement in their divorce settlement. For example, the parents may alternate who claims their children as dependents, year by year. This allows both of them to benefit from the dependent tax deduction.

Child support, spousal support, and implications on taxes in New York

You may have heard of the Tax Cuts and Jobs Act of 2017 (TCJA). This act overhauled the tax system and changed how divorces that were finalized after a cutoff date were taxed. The major change: Divorces finalized before the cutoff treated spousal support (also known as spousal maintenance or alimony) as tax-deductible for the payer and as taxable income for the receiver. But neither is true for divorces finalized after the cutoff (which is December 31, 2018). 

Important: The TCJA is a federal law, and New York’s state tax law works differently. New York is one of a few states that doesn’t directly mirror the rules implemented by the TCJA. 

While the TCJA still applies to your federal taxes, at the state level, alimony payments you make in New York are still tax-deductible regardless of when your divorce was finalized. Furthermore, any spousal support you receive still counts as taxable income at the state level.

Division of assets in a divorce

Are there any tax implications for the division of assets that occurs with almost every divorce? Maybe. 

There may be a tax implication only if any goods were sold as part of the division. The sale of assets can expose a person to capital gains taxes. This is a tax on the profit one makes from selling assets, including a large asset like a house.

The marital home is a valuable asset that divorcing couples often sell. So, will you have to pay capital gains tax on your profits? Well, an exclusion is available for many people who sell their primary family home. To qualify for the maximum exclusion, the following must typically be true:

• You owned the home for at least two of the last five years.
• You owned the home and used it as your residence for at least two of the previous five years.
• You didn't sell another home during the two-year period before the house was sold.

The maximum exclusion is significant. If you are single, you may be able to exclude $250,000 of your profits from taxation. If you are married and filing jointly, you may be able to exclude $500,000. For most people, this is a large amount of income to exclude from taxes.

It’s important to know whether you qualify for this exclusion if you’re selling property as part of your divorce.

Tax credits

A variety of tax credits are available to individuals who qualify. Notably, the credits for which you qualify might change when you get divorced.

For example, if your income dropped after divorce, you may qualify for an Earned Income Tax Credit. There is also a Child Tax Credit available for parents with dependent children under the age of 17. 

If there were any changes to your healthcare as a result of your divorce, it’s a good idea to research whether you qualify for a Premium Tax Credit. Again, the IRS offers a tool to help check whether you might qualify.

Legal fees and settlements

Most legal fees paid as part of the divorce process aren’t tax-deductible in New York or any other state.  This is because most legal fees paid during a divorce qualify as a personal expense. Broadly speaking, personal expenses aren’t tax-deductible. However, there are some exceptions to this.

Legal fees paid to obtain taxable income for a business or as part of that business’s normal operation are often tax-deductible. Legal fees paid to get tax advice or help with tax preparation for a business are also often tax-deductible.

While this won’t apply to all individuals getting a divorce, some business-owning individuals who get divorced may be able to deduct some of the fees they pay.

If you intend to get business and personal advice from the same lawyer, discuss with them your intention to claim a tax deduction. They can split their billing to make it easier for you to track what you paid to them that is and isn’t tax deductible.

Change of name after a divorce

If your name changed after your divorce (for example, if you reverted back to your maiden name), update your paperwork accordingly. The name on your tax filing should be the same as on the name your Social Security card. Failing to keep everything updated could lead to delays with your tax filing. 

Different ways to file your taxes after a divorce in New York

Like in most states, you can e-file your taxes online or file through the mail in New York. Most standard tax software programs make this easy, and people who use a tax professional to prepare their taxes may be able to have their professional mail the taxes for them. 

The way you file your taxes isn’t especially important, as long as they’re filed in a timely manner. However, e-filing will usually allow you to get your taxes to the right entities faster. This can result in a faster refund payment, if you're owed one.

References