COMMON TAX QUESTION RELATED TO A DIVORCE

By admin • June 22nd, 2009

By John J. Stockdale

There are many complex tax questions that come up when a person divorces. It is impossible to address all of them without knowing the specific facts in each case. However, the simple answers to some general questions that almost always come up are listed below. Each situation is almost always more complicated, however, and you should always talk these matters over with your legal counsel and CPA to get the answer for your specific situation. These answers will only give you a general idea of what is going on.

Do I have to pay tax on money and property I receive in a divorce settlement? Is money I pay to my ex-spouse tax deductible?

If a payment qualifies as alimony under federal tax rules, the paying spouse deducts it and the receiving spouse reports it as income. If a payment is child support, it is not deductible by the payor and is not taxable income to the payee. If a payment is property settlement, there is no immediate tax consequence on the payment. If the payment isn’t money, though, there may be a capital gains tax later when the property is sold. For example, the recipient of the home generally wouldn’t pay tax on that right away but might have to pay tax when the house is later sold.

 

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