When people compare alimony vs. mortgage interest deduction, there's usually a good amount of confusion. That's because not all payments under a divorce or separation instrument are alimony. Let's take a deeper dive to find out the difference.
Alimony Does Not Include the Following:
- Child support,
- Noncash property settlements,
- Payments that are your spouse’s part of community income,
- Payments to keep up the payer’s property, or
- Use of the payer’s property.
Here's an Example
Under the written separation agreement, Spouse A lives rent-free in a home the Spouse B owns. Spouse B who owns the home must pay the mortgage, real estate taxes, insurance, repairs, and utilities for the home. Because Spouse B owns the home and the debts are his/hers, the payments for the mortgage, real estate taxes, insurance, and repairs aren’t alimony. Neither is the value of Spouse A’s use of the home.
If they qualify, Spouse B may be able to deduct the payments for utilities as alimony. Spouse A must report them as income. If Spouse B itemizes deductions, he/she can deduct the real estate taxes and, if the home is a qualified home, he/she also can include the interest on the mortgage in figuring the deductible interest.
What Happens to the Mortgage Interest Deduction if the Home is Jointly Owned by Both Spouses?
If the divorce or separation instrument states that one spouse must pay expenses for a home owned by both spouses, some of the payments may be alimony.
When Determining Alimony vs. Mortgage Interest Deduction, You Should Speak to a Professional
It is always recommended that divorcing homeowners speak with their attorney or financial adviser to determine the direct impact of divorce on the mortgage interest deduction.
Source: IRS Publication 504
Always work with a Certified Divorce Lending Professional (CDLP) when going through a divorce and real estate or mortgage financing is present.
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