Filing Status During Separation and Divorce

• Your filing status is determined as of December 31. If you are unmarried on that date, you generally cannot file “Married Filing Jointly” for that tax year. Separated spouses may qualify as head of household if they meet the tests for maintaining a household for a qualifying person; Publication 501 explains the requirements and how dependency interacts with filing status Publication 501.

• Head of household requires you to pay more than half the cost of maintaining a home for a qualifying person. The dependency criteria—residency, age, support, and joint return tests—for qualifying children/relatives are foundational and drive whether you may use head of household status Publication 501.

Claiming Dependents and Custody Tie-Breaker Rules

• The custodial parent is typically the parent with whom the child lives for the greater number of nights during the year. The noncustodial parent may claim the child if the custodial parent signs a written declaration (Form 8332) releasing the claim to the exemption/child tax credit for specified year(s). Publication 501 and the Form 8332 instructions outline documentation requirements and procedures Publication 501; Form 8332 (sample prior version).

• The earned income tax credit (EITC) follows residency, not Form 8332. A noncustodial parent cannot claim a child for EITC solely because the custodial parent released the dependency claim; the custodial parent may still qualify if all tests are met IRS EITC FAQs.

Alimony vs. Child Support: Key Tax Distinctions

• For divorce or separation instruments executed or modified after 2018 (subject to specific transition rules), the federal income tax treatment of “alimony” and the payor deduction changed; check your decree date and applicable rules in Publication 501 and Publication 575 (pensions/annuities also address related reporting). Payments fixed or treated as payable for child support are not deductible by the payor and not includible by the recipient Publication 501; Publication 575.

• To avoid disputes, ensure the divorce instrument clearly identifies whether payments are alimony or child support and how they terminate; this documentation matters for reporting and exam substantiation Publication 501.

Tax-Free Transfers of Property Between Spouses or Incident to Divorce

• Transfers of property between spouses or incident to divorce are generally tax-free to both parties, with the recipient taking the transferor’s carryover basis (nonrecognition of gain/loss). Publication 544 explains these nonrecognition and basis rules and how they apply to real or personal property transferred in the divorce Publication 544.

• Understanding carryover basis is essential for future sales: the transferee “steps into the shoes” of the transferor’s adjusted basis, including prior improvements, depreciation, and other adjustments. Publication 551 provides detailed basis rules and adjustments (closing costs, improvements, seller-paid points) for future gain calculations Publication 551.

Selling the Marital Home

• Section 121’s principal residence exclusion allows qualifying taxpayers to exclude up to $250,000 ($500,000 on certain joint returns) of gain, subject to ownership and use tests. Publication 523 explains eligibility, basis adjustments, reporting, partial exclusions for employment/health/unforeseen circumstances, and how divorce-related moves may qualify Publication 523.

• Settlement agents may report sales on Form 1099‑S; the instructions explain when reporting is required, exceptions (including full exclusion certifications), and handling of multiple transferors (e.g., spouses) Instructions for Form 1099‑S.

Basis and Capital Gains on Divided Assets

• After property division, the spouse receiving assets inherits the transferor’s basis (carryover basis). Publication 551 details cost basis, adjustments, settlement costs, and how improvements increase basis—critical for assessing future capital gains exposure when you sell assets retained in the divorce Publication 551.

• Broader rules for calculating amount realized, gain/loss, and reporting are in Publication 544, including special sale/exchange scenarios relevant to divorce property dispositions Publication 544.

Retirement Accounts and QDROs

• Qualified retirement plan transfers related to divorce typically require a Qualified Domestic Relations Order (QDRO). Proper QDROs can allocate benefits and allow distributions/rollovers without early withdrawal penalties where permitted. Publication 575 covers the taxation of pensions/annuities, QDRO distributions, and rollover rules Publication 575.

Credits, Withholding, and Compliance

• Credits and benefits that depend on filing status and dependents—such as the child tax credit and dependent care benefits—turn on who can claim the child under dependency rules and how the divorce agreement allocates claims for a given year. Publication 501 outlines filing thresholds and dependency criteria, which matter when spouses file separately and decide who may claim a qualifying child Publication 501.

• If the home is sold and reported, ensure the correct basis and exclusion are used; Publication 523 provides step-by-step guidance to calculate gain and determine whether to report the sale. Basis rules in Publication 551 will help compute any gain correctly Publication 523; Publication 551.

Innocent Spouse Relief

• If your former spouse understated tax on a past joint return and you did not know (or had no reason to know), you may seek innocent spouse relief. The IRS explains eligibility, timing, and how to request relief (Form 8857), including separation of liability and equitable relief where appropriate Innocent Spouse Relief.

Practical Checklists for Each Spouse

• Filing status and dependents:

  • Confirm year‑end marital status and whether head of household applies. Verify who can claim qualifying children under dependency rules and maintain supporting documentation (custody calendar, school records, medical records as needed) Publication 501.

  • If the noncustodial parent will claim the child, obtain and retain a properly completed Form 8332 for specified year(s) Publication 501; Form 8332 (sample prior version).

  • Remember: EITC follows residency tests, not Form 8332 releases IRS EITC FAQs.

• Support payments:

  • Ensure the decree clearly identifies alimony vs. child support and termination terms; understand impacts on reporting and eligibility in your specific regime (pre‑ or post‑2018) Publication 501; Publication 575.

• Property transfers:

  • Use nonrecognition and carryover basis rules when structuring transfers; keep thorough records for future basis and gain computations Publication 544; Publication 551.

• Home sale:

  • Confirm eligibility for the § 121 exclusion, compute basis correctly (including improvements and settlement costs), and coordinate with the settlement agent regarding any Form 1099‑S reporting Publication 523; Instructions for Form 1099‑S.

• Retirement accounts:

  • Ensure a QDRO is in place before plan distributions are made; follow Publication 575 for rollovers, taxation, and reporting to avoid unnecessary penalties Publication 575.

• Relief options:

  • If you suspect past joint returns have errors you were unaware of, review innocent spouse relief criteria and consider timely filing Form 8857 Innocent Spouse Relief.

Final Thoughts: Documentation and Professional Advice

Tax outcomes in divorce hinge on carefully drafted agreements, proper designations (e.g., alimony vs. child support), and timely execution (e.g., QDROs). Decisions about who claims dependents, how property is transferred under nonrecognition rules, and whether the home sale qualifies for the principal residence exclusion can save significant taxes and avoid reporting pitfalls. Use the IRS publications cited above to guide planning, and consult a tax professional to tailor these rules to your specific circumstances. Proper documentation—divorce or separation instruments, Form 8332, QDROs, settlement statements, and supporting records—remains essential to substantiate tax positions and withstand IRS scrutiny Publication 501; Publication 523; Publication 551; Publication 544; Publication 575; Instructions for Form 1099‑S; Innocent Spouse Relief.