How to Split Home Mortgage Interest in Divorce
Tax issues are generally not the paramount concern of couples going through divorce. However, failure to recognize and understand the impact divorce may have on Federal Income Tax filings may lead to unsavory results and unnecessary conflict with the IRS.
One question that many divorcing or divorce couples often fail to address until the time for filing taxes is fast approaching is: “Who gets to take the mortgage interest deduction?” Like many questions regarding divorce, the answer to this question depends on the circumstances of each individual case. Thus, it is important any individual who has recently finalized their divorce to seek the advice of a tax expert regarding the effect their divorce may have on their taxes. In fact, it is advisable to seek both the input of an experienced divorce attorney as well as a tax expert during the divorce process, to ensure that any Marital Settlement Agreement entered into adequately address how tax matters will be handled during and after the divorce process. Below is some general guidance on how the mortgage interest deduction is handled post-divorce.
Lenders issue a Form 1098 Mortgage Interest Statement to the borrower and send a copy to the Internal Revenue Service. When multiple borrowers are on the loan, the lender generally names one of the borrowers as the principal borrower. The principal borrower receives the Form 1098 in the mail. Although co-owners do not receive the statement, they are legally entitled to deduct the actual interest paid on the loan. Borrowers are responsible for determining a fair division.
A divorced couple who shared a mortgage obligation during the tax year that they are divorced are entitled to divide the mortgage interest paid between their returns if the home is community property. The division does not necessarily have to be equal, but it must be fair and accurate. Only individuals who itemize deductions can deduct mortgage interest.
If the house is owned jointly after a divorce, and both former spouses are still paying the mortgage interest, then the deduction can still be split equally. If the house is in the name of only one ex-spouse, then only that individual has the right to claim the deduction.
Always work with a Certified Divorce Lending Professional (CDLP) when going through a divorce and real estate or mortgage financing is present.
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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