Filing Taxes after a Divorce in Texas: A Step-by-Step Guide
- Steps for filing taxes in Texas after a divorce
- How to determine your tax filing status after divorce
- Custodial parent designation
- Child support and alimony
- Division of assets
- Tax credits
- Legal fees and settlements
- Change of name
- Ways to file your taxes after a divorce in Texas
Filing taxes after a divorce in Texas often represents a net negative in terms of the taxes you must pay. Your filing status will generally become less beneficial, and you may interact with areas of the tax code that many people often don’t need to be heavily concerned about, such as taxes on capital gains.
However, there are also certain tax credits and deductions divorced individuals can potentially qualify for to help reduce their tax burden.
Steps for filing taxes in Texas after a divorce
The first step you need to take when filing your taxes after a divorce is similar to the step you took in previous years: Gather all relevant documents containing important financial information, including W-2s from employers, 1099 forms for other income, and 1098 forms for mortgage interest deductions. You will also need your Social Security number and any relevant identification numbers for dependents
If you intend to claim any tax credits or deductions, you will also need records that prove you earned them. The specific records you need depend on your claims, but they may include records of education expenses or charitable donations.
How to determine your tax filing status after divorce
Generally, a person whose divorce has been finalized will have a tax filing status of either Single or Head of Household. This is because your marital status as of December 31 determines your filing status for that year.
To qualify as the head of a household on your taxes, you need to have at least one dependent child and pay more than half of the household expenses.
Custodial parent designation
An important thing to keep in mind when filing taxes after a divorce is that caring for children doesn’t always mean one can claim those children as dependents. Usually, only one parent, the custodial parent, can do this.
A custodial parent is the parent whom the children live with for a greater number of nights during the year. The right to claim dependents can be established as part of a divorce decree. Sometimes, custodial parentage is alternated between parents in different years.
Child support and alimony
Child support payments aren’t tax deductible, and receiving such payments doesn’t qualify as taxable income. Under the law, it is assumed this money is one’s default obligation to a child, and the money will be spent supporting the child.
Whether alimony or spousal support payments are tax-deductible, and whether receiving them would qualify as receiving taxable income, is more complicated. The Tax Cuts and Jobs Act of 2017 (TCJA) changed the way tax law works in several ways. For divorce or separation agreements signed after December 31, 2018, paying alimony isn’t tax deductible, and receiving alimony doesn’t count as receiving taxable income.
Importantly, a divorce that was finalized on or before December 31, 2018, is typically grandfathered in under the older rules. In such cases, one can deduct alimony payments and must report alimony as taxable income.
If you’re unsure whether your divorce would cause you to fall under the new or old rules, speak with a financial or legal professional to confirm so you can keep your taxes error-free.
Division of assets
During a divorce, a significant amount of assets are typically transferred, as a couple’s community property must be split between the two of them. This can significantly affect your financial situation, but the division of assets doesn’t usually directly cause any taxable events.
However, there can be tax implications if you sell assets transferred in the divorce. This is common with larger assets (like your marital home) that are more difficult to split. The sale of a large asset like a house leads to capital gains, which are profits from the sale of various types of assets.
Short-term vs. long-term capital gains
These profits are taxable, although one will need to differentiate between short-term capital gains and long-term capital gains.
- If you’ve had an asset for a year or less, a profitable sale results in short-term capital gains.
- If you’ve had an asset for longer, profits count as long-term capital gains.
Short-term capital gains are taxed like typical income. The amount you’re taxed depends on your income bracket. Long-term capital gains have a more limited three tax rates associated with them, ranging from 0% to 20%, with most people paying no more than 15%.
While the taxes on capital gains can be significant, one of the most common sources of capital gains during a divorce, the sale of a primary residence, can often have a significant amount of the sale written off. If you individually earn $250,000 or less, or $500,000 or less if you and your ex-spouse file jointly, you can exclude the sale from your reported capital gains.
If you sell the asset for more, these exclusions still apply, reducing how much profit from the sale can be taxed. You can read more about these rules here.
There are several common tax credits that many people who are divorced may qualify for, including a child tax credit, earned income tax credit, and more. If you qualify as a head of household, you can also often benefit from a higher standard deduction.
Many people see their health insurance premiums rise after a divorce. While this is unfortunate, it does also mean a person may qualify for a premium tax credit they weren’t previously able to get.
Legal fees and settlements
The matter of which legal fees can be written off during a divorce is a complex subject. Legal fees incurred to obtain taxable income are usually deductible, for example. Most other legal costs incurred during the divorce itself are not typically deductible.
Generally, for a legal expense to be deductible, it needs to have been incurred while dealing with certain aspects of one’s employment or business.
Change of name
Importantly, a person needs to make sure the name they put on their tax papers matches the name on their Social Security card to avoid issues with the IRS. As soon as your name is changed, you should contact the Social Security Administration. Failing to do so could delay the IRS processing your return.
Ways to file your taxes after a divorce in Texas
Texas allows a person to e-file their taxes online or to file through the mail. Many services are available online that offer the ability to e-file at no or low cost.
Notably, Texas doesn’t require a state income tax return, as it has a flat 0% state income tax. It bears mentioning that even if you don’t have to file a state tax return, you will likely still need to file a federal tax return.
If you have questions about or issues with filing your taxes, the IRS has several guides and tools to make the process easier.
ReferencesFiling Taxes After Divorce or Separation. (October 2023). Internal Revenue Service.
Tax Reform Could Make Divorce a Whole Lot More Taxing. (October 2019). American Bar Association.
What Are Capital Gains Taxes? (September 2023). Wall Street Journal.
Topic No. 701, Sale of Your Home. (June 2023). Internal Revenue Service.
20 Popular Tax Deductions and Tax Breaks for 2023-2024. (December 2023). Nerd Wallet.
Tax Write Off of Legal Fees Simplified. (March 2022). American Bar Association.
A Name Change Affects a Tax Return. (December 2023). Internal Revenue Service.
Tax Information for Individuals. (December 2023). Internal Revenue Service.