Tax Planning for Divorce

Sandy Botkin
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Divorce planning: Don’t even think of getting a divorce without reading this blog.
1. Anything generally assigned to alimony and not child support is deductible by payor. Child support isn’t deductible but is tax free to recipient
2. Always try to limit alimony so that it doesn’t go up with your income if you are payor. Obviously, if you are the recipient, you don’t want this.

Note: You are deemed single for the whole year when you filed for divorce. Thus, if you not divorced in December, you would file as a single taxpayer for the whole year.

3. Rarely, be the seller of appreciated property, such as your home, to your ex pursuant to a divorce.  Why?  When you sell a home normally, you can subject your basis. Thus, if you paid $200,000 and sold home for $1,000,000, you would only get a $250,000 exclusion for your principal residence). Thus, you pay tax on $550,000 of the remaining gain. However, any cash you pay pursuant to a divorce does NOT increase your basis. This money is lost. This becomes particularly bad when property, other than principal residences, are sold to your ex pursuant to the divorce since there is no exclusion.

‎4. paying life insurance payments on your life can be deductible ONLY IF the ex is the sole owner of the policy. Thus, the ex is te one who can change beneficiaries or cash in the policy.

‎5. salvage dependency exemption. The general rule is that the parent with custody of the children for most of the year gets the dependency exemption.
EXCEPTION: If the custodial parent signs a formal waiver ( on IRS Form 8332), the non custodial parent may claim the exemption

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