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Are non-custodial parents entitled to any tax relief?

It goes without saying that one of the most challenging aspects of divorce for most people is not having to make spousal support payments each month, move out of the family home or even split their retirement savings in two. Rather, the hardest thing is adjusting to a life in which they see their children far less often than they are accustomed to or, in legal parlance, becoming a noncustodial parent.

Perhaps making things even tougher for noncustodial parents is the reality that when tax time rolls around, they will not have access to the same rather generous tax breaks as their former spouses or, as they are otherwise known, custodial parents. As it turns out, however, there is a way in which these tax breaks can effectively be transferred to non-custodial parents, meaning they can claim their child as a dependent.

How exactly would this work?

In general, the Internal Revenue Service regulations dictate that a noncustodial parent can claim a qualifying child as a dependent provided the following conditions are satisfied:

  • The parents must either be divorced or legally separated at the end of the year, or have lived in separate residences during the last six months of the year.
  • One or both parents must have paid more than half of the support for the child for the year.
  • One or both parents must have had physical custody of the child for more than six months.
  • A written declaration releasing the right to claim the child as a dependent for the year -- IRS Form 8332 -- must be signed by the custodial parent and a copy included with the noncustodial parent's tax return.

It's important to understand that any of this actually happening would seem to be predicated upon the existence of a cordial relationship between the former spouses or, at the very least, a divorce settlement dictating that this release take place.

What are some of the tax breaks that qualifying noncustodial parents could take?

While a complete listing of these tax breaks is beyond the scope of a single blog post, some of the more notable deductions include:

  • The dependency exemption deduction: Allows the noncustodial parent to deduct $4,050 in 2016
  • Student loan interest deduction: Allows the noncustodial parent to deduct up to $2,500 for qualified student loan interest expenses paid in a given year
  • Child tax credit: Provides the noncustodial parent with a credit of up to $1,000 per child (can be phased out with higher incomes)

If the noncustodial parent is unable to secure the release from the custodial parent, do they have any options for tax breaks?

A noncustodial parent unable to secure the necessary release still has the option of taking the following deductions if they satisfy the first three requirements outlined above:

  • Healthcare benefits provided for a child tax-free
  • Health savings account distributions to cover a child's medical expenses tax-free
  • Medical expenses incurred by the child and covered by the parent 

What all of this really serves to underscore is that divorce can -- and will -- present a host of complex considerations. Indeed, these complex considerations aren't just limited to tax matters, but can cover everything from retirement accounts and real estate to estate plans and business interests. Accordingly, it can be to a person's benefit to work alongside a skilled legal professional throughout the entire process.

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