Breaking down post-divorce, child-related tax breaks

The changes divorce brings can ripple throughout your life, from your children to your house, your income and, yes, your taxes.

Depending on your child custody agreement with your former spouse, you might continue to be eligible for child-related tax breaks or lose your eligibility. According to a recent SmartMoney.com article on child-related tax breaks, it usually, but not always, depends on which parent can claim the child as a dependent.

Let’s take a look at some important considerations involved in figuring out child-related tax breaks:

Custodial or noncustodial?
As far as the IRS is concerned, a child basically “belongs” to the parent who has the majority share of custody. He or she is the custodial parent; the other parent is considered noncustodial.

Generally, the custodial parent can claim the dependent exemption deduction on their tax forms for the child. However, taxes can be saved for the noncustodial parent if the custodial parent allows the noncustodial parent to claim the child as a dependent.

For noncustodial parents, this Noncustodial Parent Rule, as it’s referred to, can make a real difference at tax-crunch time.

Noncustodial Parent Rule
Under the Noncustodial Parent Rule, the child is considered a qualifying dependent if the following conditions are met:

Support
More than half of the child’s support is provided by one or both parents.

Divorced or separated
The parents must be separated under a written agreement or divorced by the end of the year, or have lived separately for at least the last half of the year.

There are more conditions to discuss regarding the Noncustodial Parent Rule, which we’ll do in our next post.

Source: SmartMoney.com: “Child-Related Tax Breaks After Divorce,” Bill Bischoff, March 27, 2012