Other Life Events
Deductions for retirement, disability, and other life changes
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How is child support handled on taxes?
Child support is not tax-deductible for the payer and not taxable income for the recipient. Unlike alimony, child support payments of any amount have zero tax impact for either parent. Only the custodial parent can claim the child tax credit (up to $2,000 per child in 2026) unless they release the exemption.
How do I handle a deceased person's final tax return?
A deceased person's final tax return (Form 1040) must be filed by April 15th of the year following death, covering income from January 1st through the date of death. The executor or surviving spouse signs as 'filing for deceased taxpayer' and can claim a full standard deduction of $15,000 (single) even if death occurred early in the year.
How do I handle taxes after a personal bankruptcy?
Bankruptcy doesn't eliminate most tax debts, but it affects your filing obligations and deduction eligibility. Chapter 7 can discharge income taxes over 3 years old, while Chapter 13 creates payment plans. You must still file returns annually, and the IRS can claim priority in bankruptcy proceedings for recent tax debts.
How does divorce affect my tax return?
Divorce affects your filing status, dependency exemptions, and deduction eligibility. If divorced by Dec 31, you must file as single or head of household. You can deduct legal fees for tax advice (average $2,000-5,000) and may qualify for head of household status worth up to $4,800 in additional standard deduction versus single filing.
How does a foreclosure affect my taxes?
Foreclosure typically creates taxable income equal to the forgiven debt amount minus your home's basis. For example, if you owed $300,000 but your home was worth $250,000 at foreclosure, you'd have $50,000 in cancellation of debt income, potentially increasing your tax bill by $11,000-$18,500 depending on your bracket.
How does a short sale affect my taxes?
A short sale typically creates taxable cancellation of debt income equal to the forgiven mortgage balance. If you owe $400,000 but sell for $320,000, the $80,000 difference becomes taxable income, potentially adding $17,600-$29,600 to your tax bill unless you qualify for the qualified principal residence exclusion.
How is inherited property taxed when I sell it?
Inherited property receives "stepped-up basis" equal to its fair market value at the owner's death. You only pay capital gains tax on appreciation after inheritance. If you sell immediately, you typically owe $0 in capital gains tax, even if the property appreciated significantly before you inherited it.
How long can I file as a qualifying surviving spouse?
You can file as a qualifying surviving spouse for exactly 2 tax years following the year your spouse died. If your spouse died in 2024, you can use this status for 2025 and 2026 tax returns, after which you must file as single or head of household.
How does inheriting money affect my taxes?
Most inherited assets receive a "stepped-up basis" to fair market value at death, meaning you pay no taxes on inherited gains. In 2026, you can inherit up to $13.99 million tax-free, and inherited IRAs must be withdrawn within 10 years for most non-spouse beneficiaries.
Is alimony tax deductible in 2026?
Alimony is only tax-deductible in 2026 if your divorce was finalized before January 1, 2019, and you haven't substantially modified the agreement since. For pre-2019 divorces, the payer deducts alimony and the recipient pays income tax on it. Post-2018 divorces get no deduction — alimony is paid with after-tax dollars.
Is forgiven debt taxable income?
Yes, forgiven debt is generally taxable income. If a creditor cancels $600+ of debt, you'll receive Form 1099-C and must report it as income. However, insolvency, qualified student loans, and primary residence foreclosures may qualify for exclusions under IRC Section 108.
Is an inheritance taxable income?
Generally, no — inheritance is not taxable income to the beneficiary. Most inherited assets receive a "stepped-up basis" equal to their value at death, eliminating capital gains tax. However, inherited retirement accounts (401k, IRA) are taxable as ordinary income when withdrawn.
How do I handle taxes when a spouse dies?
You can file jointly for the year your spouse died, potentially saving $1,000-$3,000 in taxes. For the following two years, you may qualify for Qualifying Widower status with standard deduction of $30,000 (2026) if you have dependent children. You must file a final return for your deceased spouse and may need to handle estate taxes.
What tax deductions exist for funeral expenses?
Most funeral expenses are NOT deductible on individual tax returns. However, funeral costs paid by an estate may be deductible on Form 706 (estate tax return) if the estate exceeds $13.61 million in 2026, or on Form 1041 (estate income tax return) as administration expenses.
How do I handle taxes after a natural disaster?
After a natural disaster, you can claim casualty losses on your tax return, potentially receive automatic filing extensions, and may qualify for expedited refunds. For 2026, casualty losses exceeding 10% of your AGI plus $100 can reduce your taxable income, potentially saving $2,000-$10,000+ in taxes depending on your situation.
What is a 1099-C for cancellation of debt?
Form 1099-C reports canceled debt of $600 or more that creditors must report to the IRS. The canceled amount is generally taxable income, but you may qualify for exclusions like insolvency. In 2024, creditors issued over 3.2 million 1099-C forms totaling $47 billion in canceled debt.
What is an estate tax return and when do I need to file one?
An estate tax return (Form 706) must be filed for estates worth more than $13.99 million in 2026. Only about 0.2% of estates (roughly 2,600 annually) are large enough to require filing, but the deadline is just 9 months after death with potential 6-month extension.
What is stepped-up basis for inherited assets?
Stepped-up basis resets the cost basis of inherited assets to their fair market value on the date of death, eliminating capital gains tax on appreciation during the deceased's lifetime. For example, stock purchased for $10,000 that's worth $100,000 at death gets a new $100,000 basis for heirs.
What is the surviving spouse filing status?
Qualifying surviving spouse filing status allows widows and widowers with dependent children to use married filing jointly tax brackets for up to 2 years after their spouse's death. This can save $2,000-$8,000 annually compared to filing as single, depending on income level.
What tax relief is available after a federally declared disaster?
Federally declared disasters unlock enhanced tax relief including penalty-free retirement withdrawals up to $22,000, automatic filing extensions of 6+ months, expedited refund processing, and the ability to claim casualty losses on prior year returns. The average disaster victim saves $3,000-$8,000 through these special provisions.