The year 2020 brought many changes to our lives. For couples in Maryland whose marriage was already rocky, 2020 may have led them to file for divorce. Now that it is time to file your taxes, it is important for those who divorced in 2020 to understand how their divorce will impact their tax filings.
Understand your filing status
Your filing status is determined by your marital status as of December 31, 2020. So, if your divorce was finalized before then, you can file as a single individual. If your divorce was not yet finalized, you can file a joint return or select married-filing-separately. If you and your spouse lived apart for the last six months of 2020, you each file separate returns, you have a dependent who resided with you for more than six months of the year and you paid more than 50% of the maintenance of your home, you may also be able to claim file as head of household, even if your divorce is not complete.
The child tax credit
Generally, the custodial parent with whom the child resides with most of the year is the parent who will claim the child tax credit post-divorce. However, if the custodial parent signs a waiver agreeing that the noncustodial parent can claim the child as a dependent on his or her 2020 taxes, the noncustodial parent can claim the child tax credit. What is important to keep in mind is that post-divorce only one parent can claim the child tax credit.
The sale of the family home
If, as part of the property division process in your divorce, you and your ex decided to sell your marital home and split the proceeds, the timing of this sale could affect your taxes. In general, a homeowner may avoid paying taxes on the first $250,000 of profit from the sale of their home, if they owned it and resided in it for at least two of the past five years. Married couples who file jointly can avoid paying taxes on the fist $500,000 of profit from the sale of their home under the same circumstances. But, if you divorced, sold the home and the two-year test has not been satisfied, you still may be able to exclude some of the profits.
Learn more about divorce
If you divorced in 2020, filing your taxes this year may look very different than in years past. This post is for educational purposes only and does not provide legal advice. Those who divorced in 2020 and have questions about their rights and options are encouraged to visit our firm’s website for further information.