Are Divorce Settlements Taxable?

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Getting divorced and dividing up the property isn't a taxable event by itself. For example, if the husband keeps the car and the wife gets the house, neither pays any additional taxes because of the settlement. However, the tax basis for each asset carries over, so when you do sell an asset, your gain is determined by how much you paid to acquire it when you were married. If you and your ex paid $160,000 to buy a house, for example, and you're awarded it in the divorce, if you sell it for $200,000 you owe taxes on $40,000 of gain.

Alimony vs. Child Support

Though both alimony and child support are payments from one spouse to the other as a result of a divorce, the tax implications are drastically different. Alimony paid qualifies for an income tax deduction, while alimony received counts as taxable income for the receiving spouse. Child support, on the other hand, isn't a deduction for the payer, nor does it count as income to the receiver. For example, if James pays Kelly $30,000 in alimony during the year, James gets a $30,000 tax deduction and Kelly must report an extra $30,000 of income. But if James pays Kelly $30,000 in child support, James doesn't get to write off the payments, and Kelly doesn't have to include them in her taxable income.