Divorcing parties often want to know which former spouse will be entitled to the $4,000 (for 2015) dependency exemption. The exemption is granted with respect to a “qualifying child”.
The rules are found in Internal Revenue Code Section 152 and there are many exceptions and requirements. Basically, a qualifying child must be an unmarried citizen or resident of the United States who lives with the person claiming the exemption for more than half the year, is under age 19 (age 24 if a full time student,) has not provided more than half his or her own support and is the child of the taxpayer.
If both parents could claim the exemption, the exemption goes to the parent with whom the child lived more of the time. If the parents had equal time, the exemption goes to the parent with the higher income. This may be a disadvantage because the exemption starts phasing at adjusted gross income of $258,250 for single taxpayers (in 2015).
There is a special rule for divorced or separated parents that allows the custodial parent to waive the dependency exemption in favor of the noncustodial parent. This is generally done by the custodial parent signing IRS Form 8332 and the noncustodial parent’s attaching the form to his or her return. This election is made on a year-by-year basis.
If the parent or parents are barred from claiming the exemption due to failing to meet the requirements, the child may claim a personal exemption on his or her own tax return.
In a community property state like Texas, if a child’s support is derived from community income, the exemption may, by agreement, be taken by either husband or wife on a separate tax return. A single exemption amount, however, cannot be divided between them.
See my previous blog on Tax Returns and Divorce for more information.