Going through a divorce during tax season requires balancing Internal Revenue Service (IRS) rules with specific state laws. As the deadline for filing nears, you must understand the critical implications of your divorce on taxes.
Your marital status at the end of 2025
Your marital status on December 31, 2025, determines your filing status for that tax year. If the courts have finalized the divorce by that date, filing as Single or Head of Household is a must.
Since divorce can be a lengthy process, it is possible that the courts have not yet issued orders by December 31. If so, you must choose between Married Filing Jointly or Married Filing Separately. Even if you have been physically separated for months, the state requires a formal judgment of legal separation
The Illinois child tax credit
If you qualify for the Earned Income Tax Credit (EITC) and have a child under age 12, the state looks at your EITC amount and gives you 40% of that value. You may only claim credit if your child has lived with you for more than half the year.
If you are a non-custodial parent, filing an IRS Form 8332 allows you to claim the Child Tax Credit. However, this does not apply to EITC.
What lies ahead after dividing properties
Once the court allocates marital property equitably between parties, the transfer of assets is generally tax-free at the time of transfer. However, if you receive a house or stocks, you also inherit their cost basis. Selling the house with significant appreciation can mean that you may owe capital gains tax.
Advancing towards your future with caution
Tax filing can already be a headache by itself, but its complexity increases upon considering divorce. Take this moment to review your current finances and identify potential liabilities. Consider hiring an accountant to help you balance your taxes. Additionally, seeking legal advice from a family law attorney would be wise for ensuring you comply with federal and state law.