Changes to the federal tax laws affect parents who pay or receive child support. The person who pays child support cannot deduct this amount from taxable income. The person who receives income does not report it as income tax. Before the Tax Cuts and Jobs Act of 2018, child support was both tax deductible for the person paying and taxable for the recipient. This change also applies to spousal support.
Consider these child support factors when planning to file your 2019 tax return.
Claiming the child as a dependent
Current IRS rules say that you can claim your child as a dependent on your federal tax return when he or she lived with you for more than six months of the year. However, the noncustodial parent can claim the child as a dependent when the custodial parent signs a copy of Form 8332, Release/Revocation of Release of Claim of Exemption for Child by Custodial Parent.
Qualifying for tax credits
Only one parent can claim eligibility for certain tax credits associated with dependents. The Child and Dependent Care Credit provides an individual credit of $3,000 to cover qualifying child care expenses while the Child Tax Credit provides a credit of $2,000 per minor child who qualifies. Generally, the custodial parent has the right to claim these taxes, but it is important to establish these parameters as part of your divorce agreement to avoid later conflict.
Understanding other tax effects of divorce
If you divorce in 2020, you must file federal taxes as a married person, even if you were only together for part of the year. Couples who divorced in 2019 must file a single tax return for 2020. The transfer of property between divorcing individuals is not subject to federal income tax. However, if you sell assets after the court finalizes the divorce, you may owe capital gains tax. This is not always the case for the primary home, however, so consult a tax professional.