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Is Property Division Advice Tax Deductible?

April 14, 2017

When it comes to tax season, very few in Connecticut relish the thought of sitting down and preparing their return. For those who have gone through a recent divorce, tax season may be even less appealing than usual. The first post-divorce tax return can be a challenge, as the financial landscape of both spouses has shifted since the previous tax season. The good news is that there are a few divorce items that are deductible, including some related to property division.

Legal advice is generally not allowed to be claimed as a tax deduction. However, an exception is made for advice geared specifically toward providing guidance on tax issues related to divorce. An example would be legal fees billed for advising a client on how to structure the best property division settlement, in terms of minimizing his or her tax burden. The tax consequences of dividing various investments would also be considered a deductible expense.

When claiming these very narrowly defined legal expenses, it is important to understand the requirements set in place by the IRS. In order to do claim these expenses as deductions, the legal fees must exceed two percent of the filer’s adjusted gross income (AGI). Any amount that is paid beyond that threshold is eligible to be claimed as a deduction on form 1040, Schedule A.

For Connecticut spouses who would like to include legal fees within their 2013 tax return, it is imperative that an itemized bill is received from the attorney who provided these services. Having this documentation is essential should the filer encounter an audit down the road. While not every divorce and property division process will yield this type of deduction, it can make a significant difference to the bottom line for those who qualify.

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