The Dependent Tax Deduction - New RulesThe rules for the Dependent Tax Deduction after divorce have changed. For example, from 2009 and forward, the custodial parent is the one with whom the child resides the greater number of nights during the year, regardless of the terms of the divorce decree. The following article can help you understand what changes were made to the dependency exemption and how they will affect you. Dependency Exemptions in Divorce In 2008, the IRS amended Section 152(e), which deals with dependency exemptions. The changes to the tax code can be summarized as follows: 1. A divorce agreement or court order can no longer be used as a substitute for Form 8332. 2. The custodial parent, for 2009 and forward, is the one with whom the child resides the greater number of nights during the year, regardless of the terms of the divorce decree. 3. The custodial parent can unilaterally revoke the release of a child exemption for calendar years 2009 and forward, even if the release was made prior to 2009. Given these changes, all non-custodial parents who plan to take a dependency exemption should obtain Form 8332 for 2009 and all future tax years. For any future settlement agreements that will include a provision for a non-custodial parent to take a dependency deduction for one or more children in one or more future tax years, have the custodial parent complete Form 8332 coincident with executing a settlement agreement. Do not forget that the individual claiming a dependency exemption is entitled to benefit from a Child Tax Credit and any allowable Hope and/or Lifetime Learning Educational Tax Credits. As part of any discussion surrounding the dependency exemption, you should consider the various "Phase Out Amounts" - i.e. at what level of income benefits diminish. For 2009, the Child Tax Credit phases out from $75,000 to $95,000 (of Adjusted Gross Income) and Hope and/or Lifetime Learning Educational Tax Credits phase out from $48,000 to $58,000 for single and head of household filers. The credits are generally more valuable to low and middle income filers than the dependency exemption itself. Finally, remember that the custodial parent is the only parent eligible for additional tax benefits, such as filing as Head of Household, the Earned Income Credit, and the Child and Dependent Care Credit. As a result of the varying phase outs, credits, deductions and overall complexity in this area of the tax code, please be sure you understand how the terms of a settlement will impact income taxes before signing a settlement agreement. Return to top of Dependent Tax Deduction Copyright 2009. Article by Noah B. Rosenfarb, CPA, ABV, PFS, CDFA Noah is Managing Director of Freedom Divorce Advisors (www.FreedomDA.com), a boutique CPA firm for divorcing women. He created The LIBERTY Agenda, a patent-pending process to help high net worth women deal with the financial challenges of divorce. Noah is a frequent speaker and proud sponsor of www.DECNJ.org, a non-profit organization that educates divorcing women. You can also click the following link to read more articles by Noah Rosenfarb. In addition to the dependent tax deduction, you also need to consider who claims the head of household tax filing status. The following articles shed more light on some of the tax issues that come up during and after divorce: Divorce Home / Articles / Divorce
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