A taxpayer is considered unmarried for the whole year if they have obtained a final decree of divorce OR separate maintenance or have obtained a decree of annulment by the last day of the tax year.

Legal fees and court costs for getting a divorce are not deductible. However, under Section 212, attorney fees paid in divorce are deductible when:

1. In connection with the determination, collection, or refund of any tax year, and
2. For the production or collections of income, i.e. alimony.

Legal fees for tax advice in connection with divorce and legal fees to get alimony are deductible. A breakdown showing the amount charged for each service should be requested.

A married person living apart from their spouse is treated as an unmarried taxpayer if all the following apply:

1. Files a separate return
2. Maintains a household, which, for more than half of the taxable year, is the principal place of abode of a child for whom the taxpayer is entitled to a dependency deduction.
3. Furnishes more than one-half of the cost of maintaining the household, and
4. Does not have the other spouse living in the household during the last six months of the taxable year.

If all apply, the taxpayer may file as single or head of the household.

Divorced taxpayers are still jointly and individually responsible for any tax, interest, and penalties on joint returns filed before the divorce. The divorce decree can’t remove this obligation and responsibility. The IRS does not care who agreed to pay per divorce decree.

Alimony payments to or for a spouse under a divorce or separation instrument must be in cash. Transfers of services or property, including a debt instrument of a third party or an annuity contract, execution of a debt instrument, or the use of property do not qualify as alimony.

Payments to a third party under the terms of a divorce or separation instrument can qualify as a cash payment to the spouse. Common third party payments include medical expenses, rent, living expenses, mortgage payments, utility bills, education, and income taxes.

Please note that alimony payments will no longer be tax deductible, nor taxable to the recipient, for divorces entered into after 2018.

If child custody is not determined by decree of divorce, separate maintenance, or custody decree, then the parent who has physical custody of the child for the greater part of the year is considered the custodial parent.

Proposed Reg 1.152-4 ( c ) provides that if a child resides with each parent for an equal number of nights, the parent with the higher adjusted gross income is the custodial parent. (if not determined by any decree)

The custodial parent will qualify for the child-care tax credit even if the custodial parent cannot claim the dependency deduction for a child who is under age 13 or disabled. (i.e. because of a waiver Form 8332)

A child of divorced parents is treated as dependent of both parents for the medical expense deduction. A parent can deduct medical expenses they paid for the child even if an exemption was not claimed.

If a taxpayer is due a refund, all or part of the refund may be used to pay the past due amounts. These debts include:

1. Child support payments
2. Spousal support payments
3. Federal debts, such as student loans

U.S. Supreme Court held that the tax-intercept law applies to refundable income tax credits as well as to tax payments.

Property laws of each state vary. What is owned separately and what property is marital.  Ohio is an equitable distribution state.

Equitable Distribution States. Assets and earnings accumulated during marriage are divided equitably and fairly at divorce. Some equitable distribution states require the “guilty” spouse to receive less than a full share. Most states follow the equitable distribution rules.

All states permit a married person to treat certain earnings and assets as separate property. In the equitable distribution states, separate property includes:

1. Property acquired by spouse before marriage
2. Property received in exchange for separate property
3. Compensation for personal injury
4. Gifts made to one spouse only
5. Inheritance obtained by only one spouse.  

Should a spouse purchase the marital residence from the other spouse and borrow funds to do so?  If one spouse issues a note to the selling spouse, the interest on a note is not deductible unless the note is secured by the residence. The selling spouse does not report any gain or loss on the sale under Section 1041. However, the deferred gain is transferred to the purchasing spouse, since the basis carried over to the buyer. Receiving low basis property, without a basis increase when the residence is purchased from a spouse creates a deferred tax liability. However, the Section 121 exclusion is available if the property is a primary residence and applicable requirements apply. (the current $500,000/$250,000 exclusion on sale of primary residence)

If the transferee spouse or former spouse purchases an interest in tangible personal property or real property used in a trade or business or held for investment:

1. The purchasing spouse will not acquire any additional basis for any amounts paid for the property.
2. The transferred property may be subject to depreciation or investment credit recapture on later disposition, and
3. If the property is subject to a mortgage, it can be subject to mortgage in excess of basis rules on later disposition.

Like kind exchanges are available to the purchasing spouse at a later date. 

The tax treatment of housing costs depends on how the home is owned. If the non-occupying spouse owns the entire home, all housing payments made by the non-occupying spouse under the terms of divorce are made for the non-occupying spouse’s benefit and are not alimony.The non-occupying spouse is entitled to deduct mortgage interest and real estate taxes.

If the occupying spouse owns the entire home, all housing payments required to be made under the terms of a divorce are made for the occupying spouse’s benefit and are alimony. The occupying spouse includes the payments in income and can claim the interest and real estate taxes as itemized deductions.

If the property is jointly owned and the divorce decree states that a taxpayer must pay all expenses, some of the payment may be alimony. The taxpayer can deduct one-half of the total payments as alimony if both spouses are liable for the mortgage. One-half of the interest is also deductible. If the taxpayer’s spouse is not liable on the mortgage, none of the mortgage payment paid is alimony. The taxpayer may also claim the interest and taxes.