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How child custody could affect your income tax filing

Earlier this month, we touched on a few potential implications of family law issues on income taxes. With the federal tax filing deadline fast approaching, we thought it might be a good time to revisit that topic and add some clarification on how a child custody order or agreement could affect your income tax filing.

At first glance, the rule seems relatively simple: whichever parent has custody of the child or children for the majority of the year is considered to be the custodial parent for IRS purposes. As the custodial parent, that person is eligible for the dependent exemption deduction for the child or children.

Therefore, the other parent, called the noncustodial parent, is not eligible to claim the child as a deduction. But in many divorce and child custody cases, the dependent exemption deduction becomes a highly coveted item. That is understandable – the 2011 deduction was $3,700, and will increase to $3,800 in 2012.

So, in many cases, the deduction will become somewhat of a bargaining tool, or will be something used strategically to put the family as a whole in a better financial place. But in order for the noncustodial parent to claim the deduction, he or she must meet a few requirements.

First, the parents must be legally separated or divorced by the end of the year, or musts have lived apart during the last six months of the year. Second, the child must be in the custody of one or both of the parents for at least half of the year, and over half of the child’s support must be provided by one or both of the parents. And third, the custodial parent must sign a written declaration releasing the deduction to the noncustodial parent.

Source:, “Child-Related Tax Breaks After Divorce,” Bill Bischoff, Mar. 28, 2012