When there is a divorce and there are minor children involved, the question of who gets to claim the exemption for the children needs to be answered.
Now, a “time test” is used as a general rule. The child must have the same principal place of abode as the taxpayer claiming the exemption and the child must live there more than one-half of the year. The parent must have legal physical custody also for more than one-half of the year.
The custodial parent is now defined as the parent with whom the child lives for a greater number of nights during the calendar year. The other parent is called the “noncustodial” parent. This test reverses the prior regulations. It used to be the term “custody” was determined by the terms of the most recent decree of divorce. Now it is very important to keep daily records of the nights the child spent with each parent. Parents that can not prove they had custody of a child for more than half of the year will not be treated as the custodial parent.
There is yet another item to consider. If Form 8332 is signed by the custodial parent that gives the noncustodial parent the right to claim the exemption for the child for a particular year, then the noncustodial parent can claim the exemption for that year. But the noncustodial parent must attach the Form 8332 to his or her income tax return.
If the Form 8332 is used, it only releases the dependent exemption and the potential $1,000 Child Tax Credit and the possible additional Child Tax Credit to the noncustodial parent. The parent that signed and gave Form 8332 still can claim Head of Household filing status, the Earned Income Credit and the Dependent Care Credit, if that parent is eligible.
It is possible to sign Forms 8332 for several years now, transferring the right to claim the exemption to the noncustodial parent. It could be a benefit to have forms for future years already signed and delivered. That could help avoid the questions that can happen when we forget what was agreed to be done in this area. However, the custodial parent is allowed to revoke the release for future years, see Part III of Form 8332.
Hopefully both parents will put the child’s welfare as the most important thing. Form 8332 is usually the easiest and best answer. Both parents should keep a record as time goes by of the nights the child slept with them. Now, a divorce decree provision is not enough to get the exemption, etc.
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.