Tuesday, February 1, 2011

Taxes and the divorce settlement


If not properly treated the definitive divorce settlement can have costly effects on capital gains and income taxes.

The capital gains tax and the settlement of divorce:

Gains refers to the market value of an asset less the fair cost. For example, if you paid $ 100,000 for a House and now worth $ 135,000 you will have a capital gain of $ 35,000. This applies to other activities, such as mutual funds, investment funds and any other goods to share that has appreciated in value.

It is very important that you receive in your solution properties of divorce does not have a capital gain bigger your former spouse. When dividing property, do not be fooled into thinking of that property of equal value is to your advantage. You should have the property that is parsed to determine the amount of capital gains on the property. This will keep you end up with a fiscal liabilities came time to income tax.

For example, you might be offered an account of the investment is worth $ 150,000, but cost is only $ 50,000. This means that there is a gain of $ 100,000 which you must pay at least the long-term capital gains tax. There might be short to long term as well, which are taxed at your marginal rate, which can be as high as 35 percent.

In 1997, the Federal Government has eased the burden of income tax in respect of your country of residence. Allow the exclusion of gain capital expenditures of $ 250,000 to the spouse, if they lived in the House for at least 2 of the past 5 years. If the House is to be sold and there is a considerable gain in value (over $ 250,000), you must consider the sale before the divorce to exploit the total exemption of $ 500,000.

Income tax and the settlement of divorce:

Mainly food, payments and filing status are affected by your divorce settlement. Food received are taxable as ordinary income, so that a payment of $ 60,000 received is actually worth $ 42,000 after taxes when considering a 30% of State and federal marginal tax bracket.

On the flip side, paying alimony receives a tax deduction. So paying $ 60,000 itself actually costs the taxpayer $ 42,000 assuming that they are in the same tax bracket.

Filing status is an important decision, you will do after divorce. If you are still married 12/31 of the tax year, you have the option of filing a joint return with your spouse. If you can do this without conflicts, you should consider this option because it saves substantial fees for both spouses.

If you were divorced after 31/12 and qualify, as head of the household deposit compared to single can also save tax dollars. Is the best course of action is to consult a tax professional before, during and after the divorce process.

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