Are Divorce Expenses Tax Deductible?
The Internal Revenue Service allows divorced taxpayers certain tax deductions and income exclusions for expenses incurred during divorce proceedings. Generally, these tax deductions and income exceptions are available to most taxpayers, not only divorced taxpayers. The IRS allows taxpayers to deduct certain legal fees and expenses. Taxpayers may also exclude income from the sale of their homes in certain circumstances.
Other People Are Reading
-
Attorney's Fees for Divorce and Tax Preparation Fees
-
Taxpayers may deduct legal fees for tax preparation and tax legal advice. The portion of legal fees the taxpayer spent to obtain tax advice for tax planning incidental to divorce is deductible. If the taxpayer receives legal advice regarding tax liabilities and tax considerations for tax planning purposes, then those fees are deductible. Taxpayers who spend legal fees to obtain an attorney's assistance in collecting alimony may deduct those fees. Only the portion of the attorney's fees spent on collecting income is deductible. General divorce advice is not deductible.
Itemizing Taxes
-
Taxpayers are subject to the IRS two percent rule. The IRS uses a two percent floor to determine whether a taxpayer is eligible for deducting legal and tax expenses. Using IRS Form 1040 Schedule A, taxpayers may deduct these legal expenses if the expenses exceed two percent of the taxpayer's adjusted gross income. If the deductions do not exceed this amount, then the taxpayer may not deduct the fees for tax and income advice. Additionally, only taxpayers who itemize on their tax returns may deduct the fees for miscellaneous expenses. Taxpayers who take standard deductions, and do not itemize, are not qualified to take the tax deductions.
-
Tax Brackets to Determine Deduction Amounts
-
The taxpayer's tax bracket determines the deduction amount for legal fees. Once the taxpayer's gross income is calculated and the taxpayer determines his individual bracket, then the taxpayer calculates the amount of fees over the mandatory two percent floor.
Exclusionary Home Sale Income
-
Divorced taxpayers who decide to sell their marital home may deduct the income generated from the home's sale. The IRS allows taxpayers selling their main or primary residences an exclusion from the general taxation of all income rules. Taxpayers who have not used their homes as a vacation home or investment-income generating property may exclude the portion of the sales up to $250,000. Taxpayers who are not divorced by the end of the tax year may still file tax returns as married filing jointly spouses. These separated individuals can exclude home sale income up to $500,000. This capital gains exclusionary rule allows taxpayers to have tax-free income.
Seek Legal Advice
-
Since tax laws may frequently change, you should not use this information as a substitute for legal or tax advice. Seek advice through a certified accountant or tax attorney licensed to practice law in your jurisdiction.
-
References
Resources
- Photo Credit tax forms image by Chad McDermott from Fotolia.com
