New Tax Laws for Unmarried Parents

Unmarried parents should be aware of proposed tax laws regarding dependency exemptions for 2007. The rules state that a custodial parent may claim exemption for a child who resided in their home for more than half of the year. A noncustodial parent may only claim dependency if the custodial parent releases their claim. The new regulations change the definition of a "custodial" parent to one whose child resides in their home for the greater number of nights in a calendar year.

If the parents have an equal amount of time with the child, the IRS defines the parent with the higher adjusted gross income as the custodial parent. The new regulations also change the waiver process. Custodial parents must now sign a written, unconditional declaration by filing Form 8332 with their tax return. This declaration can be for 1 or more years or indefinitely. To revoke a waiver, the custodial parent must send written notice to the noncustodial parent and the IRS.