How does divorce affect my taxes in New York?
Four things change. Your filing status for the whole year is whatever it is on December 31, so a divorce finalised in December means two single returns for that year. Child support is never taxable to the receiver or deductible by the payer. Spousal maintenance under an agreement signed after 2018 is not deductible on the federal return and not income to the receiver, but New York did not follow that change: on the New York return it is still deductible by the payer and taxable to the receiver. And the children can be claimed by only one parent per year, normally the one they live with most, unless the agreement says otherwise and the right form is signed.
The four tax questions in every divorce
None of this is advice for your return; it is what the rules say, so you know what to ask your preparer.
- Filing status. Decided by your marital status on 31 December. Married on that date: married filing jointly or separately. Divorced: single, or head of household if a child lived with you more than half the year and you paid more than half the home’s costs.
- Child support. Not income to the parent receiving it and not deductible by the parent paying it, on federal and New York returns alike.
- Spousal maintenance. Federal: for divorce or separation agreements executed after 31 December 2018, the payer gets no deduction and the receiver reports no income. New York: the state kept the old rule, so maintenance is deductible by the payer and taxable to the receiver on the IT-201, which can change what a fair figure is. Agreements should say which.
- Claiming the children. Only one parent can claim a child in a year. By default it is the custodial parent, the one the child lived with more nights. The agreement can give it to the other parent, in alternating years or otherwise, using IRS Form 8332.
- The house. Transferring the house between spouses as part of the divorce is not a taxable event. If it is sold, each spouse can usually exclude up to $250,000 of gain if it was their main home for two of the last five years; the agreement can preserve that for a spouse who moved out.
- Retirement accounts. A transfer under a QDRO, or of an IRA incident to divorce, is not taxed at transfer. Cashing out instead of transferring usually is, and may carry a penalty.
IRS Publication 504, Divorced or Separated Individuals. Tax Cuts and Jobs Act §11051 (alimony after 2018). New York Tax Law §612 and Department of Taxation guidance TSB-M-18(6)I on alimony decoupling. IRS Publication 523 (home sale).