Divorce brings about financial changes, not just in income and expenses but also in taxes. In Florida, individuals going through a divorce may lose or gain certain tax breaks due to their settlement. These shifts can have long-term implications on financial stability, especially for those with complex family law matters involving significant assets or incomes.
Tax considerations are overlooked during emotionally charged divorce proceedings. However, understanding how the settlement impacts tax breaks is crucial. Changes in marital status, dependent claims and property ownership can alter eligibility for key deductions and credits.
Tax breaks to watch during and after a divorce
Divorce in Florida can lead to changes in eligibility for important tax deductions, credits and exclusions. Here are some of the tax breaks that may change during and after a divorce:
- Dependency exemptions and child-related tax credits: The divorce settlement determines who can claim the children as dependents. While the parent with primary custody receives this right, agreements may allow the other parent to claim the child tax credit or other dependent-related benefits.
- Marital home and capital gains exclusion: When a marital home is sold during or after a divorce, the capital gains exclusion can be a valuable tax break. However, eligibility depends on how the property is divided and how long the parties lived in the home.
- Spousal support and tax treatment: Under current tax laws, spousal support (alimony) is no longer deductible for the paying spouse or considered taxable income for the recipient.
- Loss of joint filing status: Filing as “married filing jointly” provides tax savings compared to filing as single or head of household. Once divorced, individuals may lose the lower tax brackets and deductions associated with joint filing.
- Retirement account contributions and deductions: Dividing retirement accounts comes with tax consequences, especially if not handled through a Qualified Domestic Relations Order (QDRO). Additionally, divorcees should review their eligibility for certain tax-deferred contributions, as their filing status and adjusted gross income (AGI) limits may change.
For individuals in Florida with high-value assets or intricate financial situations, skilled legal guidance is vital. This can help ensure the divorce settlement aligns with each party’s long-term financial goals while minimizing any tax burdens.