Filing for divorce may have a significant impact on your Colorado and federal income tax returns in the year that your marriage ends. It may also have a significant impact on future tax returns if you share children with your spouse or received assets that may be subject to deferred capital gains or losses.
Dividing assets in a divorce may trigger a taxable event
Say that you are required to sell the family home as a condition of your divorce decree. If the home is sold after the divorce is finalized, you’ll likely owe capital gains taxes if it sells for more than $250,000 above its original purchase price. The same may be true if it sells for more than $500,000 above the original purchase price before the divorce takes effect.
The sale of stocks, bonds or other equities may also result in profits that need to be disclosed on a state or federal return. If you receive funds from an IRA, 401(k) or other retirement plan, you may need to pay taxes on that money if it isn’t rolled into a new tax-deferred account.
Capital losses are typically capped at $3,000 per year
If you sell an asset at a loss, you can usually use that loss to reduce your tax burden for a given year. However, you can only take capital losses of up to $3,000 per year. Any remaining losses need to be rolled over into future years.
Child support and alimony payments do not count as income
As a general rule, child support and alimony payments are not classified as income. Furthermore, any payments that you make are unlikely to reduce your taxable income for the year.
Ending your marriage may change your tax status, make you eligible for various tax breaks or force you to pay capital gains taxes in the year that your marriage ends. It may be in your best interest to learn more about how a divorce may impact future tax returns.