When people compare alimony vs. mortgage interest deduction, there's often confusion. Not all payments under a divorce or separation instrument are considered alimony. Let's take a deeper dive to understand the differences.
Alimony Does Not Include the Following:
- Child support
- Noncash property settlements
- Payments that are your spouse’s part of community income
- Payments to maintain the payer’s property
- Use of the payer’s property
Example Scenario: Under a written separation agreement, Spouse A lives rent-free in a home owned by Spouse B. Spouse B must pay the mortgage, real estate taxes, insurance, repairs, and utilities for the home. Since Spouse B owns the home and the debts, these payments are not considered alimony. Similarly, the value of Spouse A’s use of the home is not alimony.
If eligible, Spouse B may deduct the utility payments as alimony, and Spouse A must report them as income. If Spouse B itemizes deductions, they can deduct the real estate taxes and, if the home is a qualified home, include the mortgage interest in their deductible interest.
Jointly Owned Home and Mortgage Interest Deduction: If the divorce or separation instrument states that one spouse must pay expenses for a home owned by both spouses, some payments may be considered alimony.
Consult a Professional for Alimony vs. Mortgage Interest Deduction: Divorcing homeowners should always consult with their attorney or financial advisor to determine the impact of divorce on the mortgage interest deduction.
Source: IRS Publication 504
Work with a Certified Divorce Lending Professional (CDLP®): Always work with a Certified Divorce Lending Professional (CDLP®) when dealing with divorce and real estate or mortgage financing.
This is for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or tax professional to obtain legal and tax advice. Interest rates and fees are estimates provided for informational purposes only and are subject to market changes. This is not a commitment to lend. Rates change daily – call for current quotations.
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