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How taxes will change after a divorce

When people in Texas get a divorce, their taxes will change. If the divorce was finalized by the last day of the calendar year, then each person should file taxes separately. If it was not yet final, they will need to choose between married filing separately or filing jointly.

If one person is required to pay alimony to the other person, that alimony payment is tax deductible. Taxes on alimony are paid by the recipient. If the couple has children, the parents will need to agree on who will take the dependent exemption. This goes to the custodial parent unless that parent signs a waiver that allows the noncustodial parent to use it. The parent who takes this exemption may also take the child credit as well as the American Opportunity higher education credit.

There may be taxes associated with asset division, but in many cases, couples will have worked these out at the time of the divorce. People who have kept an asset from the marriage and go on to sell it later should be aware that they might have to pay capital gains tax.

A high-asset divorce may involve dividing a retirement account and alimony. Some retirement accounts will incur taxes and penalties if a withdrawal is made in order to divide the account as part of the divorce settlement without a document called a qualified domestic relations order. There may be additional rules associated with retirement accounts or pensions as well. People who are considering divorce but who do not anticipate that it will be finalized in 2018 might want to talk to an attorney about the alimony deduction if they expect to be receiving or paying it. For divorces finalized after 2018, based on the tax bill passed at the end of 2017, alimony payments will no longer be deductible, and the recipient will be taxed on the payment.

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