Discussion:Divorce, Filing Status and Mortgage Interest deduction
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Discussion Forum Index --> Tax Questions --> Divorce, Filing Status and Mortgage Interest deduction
| 29 December 2006 | |
| In 2006 I became divorced. Both the house and the mortgage were in my spouse's name. I got the house as part of the divorce decree, and I paid the mortgage from the time the house was purchased (before the marriage) all the way to its sale (three months after the divorce). The mortgage was never transferred to my name. I simply paid it off as part of the sale.
The divorce decree states that if allowable under federal law, for 2006 we would file a joint return, and that I was entitled to take the mortgage interest deduction (since I paid it all). Is this even possible? My read of IRS publications says it is not, but I am no expert. | |
| 29 December 2006 | |
| If you paid the mortgage interest and it was in your name, then yes you can deduct it. | |
| 29 December 2006 | |
| It was not in my name; I just paid it. I have documentation to back it up, but the mortgage was solely in my spouse's name from inception to payoff. | |
| 29 December 2006 | |
| If the divorce was final in 2006 the only way that I know that you could file a joint return is to remarry your ex before the end of the year. | |
| 29 December 2006 | |
| LOL.
Something tells me that isn't going to happen. :) What about the mortgage interest? | |
| 29 December 2006 | |
| I kind of figured that, but who ever wrote decree seems to think that it's a possibility..., Sorry, I think that you need to be liable for it and pay it. Unless there's something that says that you were liable.....I don't think you can take it. Seems to me you should have this "loan" paid back to you on the sale of your house. I'm not a lawyer though... | |
| 29 December 2006 | |
| Thanks PJL. You've pretty much confirmed what I thought. The divorce decree stipulated that I was responsible for the mortgage (spouse and I felt that that was only fair), and that I would either pay it off *or* get it transferred it to my name. I chose the former, selling the house and paying the mortgage off.
Although... come to think of it, since the decree did in fact make me responsible, would that mean that I could at least take the mortgage interest deduction for interest paid *after* the decree date? Appreciate the help! | |
| 29 December 2006 | |
| Sorry Lost...I misunderstood; I thought this was "joint"...as it is, you are not entitled to the deduction since you were not "liable" for it. Is there a part of the divorce decree that this could be considered "alimony" to your spouse? That is the only way I can think you could deduct the payments...but as PJ is not nor am I an attorney, this is something you need to discuss with an attorney....sorry about your bad luck :( | |
| December 29, 2006 | |
| Lostbyirs - Here are the rules for the mortgage interest deduction: Home Mortgage Interest | |
| 29 December 2006 | |
| That pretty much nails it; the key is the sentence "In addition, there must be a true debtor-creditor relationship between you and the lender."
Ah well. Guess I'll tell the ex her Schedule A will be more beneficial than expected this year. It will make her life a bit easier. Thanks!! | |
| 29 December 2006 | |
| She may not be able to deduct them, as she didn't pay them.....(You must have given her a gift of the amount due, and she paid them????) | |
| 29 December 2006 | |
| PJL,
For the monthlies I deposited funds into her checking account (which was in her name only). Payments were then auto-debited by the lender. She had the debtor-creditor relationship until the very end. With respect to the final payoff, title on the house was transferred to me on the same day the decree became official. When I sold the house, I had the mortgage paid out of escrow. So I imagine both payment methods would qualify as gifts? Or is the final payoff (whether in whole or part) excluded from being a gift because the divorce decree said I was responsible for paying it off? (It was part of the property settlement -- there was no alimony.) If it's relevant to her ability to deduct the interest, the decree and transfer of title were in February, and the sale of the house/mortgage payoff was in May. | |
| 29 December 2006 | |
| A person can deduct mortgage interest if they own the property and are liable for the debt and make the payments. You didn't make the payments. You lose on all counts.
The terms of a marital settlement agreement have no bearing the tax treatment of an item. That agreement is strictly between the two divorcing parties. Judging by this and your other topic about the refund statute, I am convinced that you should seek professional tax assistance. By the way you write you sound quite bright and clearly articulate, but trying to solve tax problems yourself hasn't worked out well. I think that's about the best free advice you can get from any professional. | |
| 29 December 2006 | |
| Thanks Larry, advice well taken. No more Q&A from here. | |
| 29 December 2006 | |
| My apologies, Lost. I didn't mean to suggest that you go away. Many of us here like answering these sorts of questions on the fly. But our free advice may only be worth what readers pay for it. You have serious problems costing you serious dollars. -- Larry Hess, CPA | Albuquerque, NM - Talk to me | |
| 29 December 2006 | |
| As of the date of the divorce decree Lostbyirs is the equitable owner of the house. So long as he can demonstrate that there was no other reason he deposited money into the account other than to pay the mortgage (which was after all a claim against his property that he duly satisfied) he is completely entitled to the interest deduction. You might even go further and extend ownership to the date the agreement was made. | |
| 29 December 2006 | |
| It's OK Larry. The advice is good advice (in both threads). In this thread in particular, I understood from the discussion above that I can't take the interest deduction. My only hope is that I have not stuck my ex with a taxable "gift" of the entire paid-off mortgage balance. That would be very, very bad for her, and it certainly wasn't our intent. | |
| 30 December 2006 | |
| Larry: I spoke with an EA this evening. His initial read was parallel to Dennis with respect to the time since I became owner of the house, including the ability to demonstrate that I made the payments. He also mentioned having seen this kind of issue before-- not an exact match, but close-- and he is going to do some research (on both the "before" and "after") and give me a call back.
I will post an update to this thread when I have heard back. Thanks to everyone who has been answering! I am learning, which is more important to me than the potential tax bite. | |
| 30 December 2006 | |
| Lostbyirs, Dennis is giving you the correct answer, based on Reg. 1.163-1(b). The equitable owner, not necessarily the legal owner, may claim a deduction for interest paid on the mortgage -- even if the equitable owner is not directly liable on the mortgage. You need to seek out the services of a qualified professional. I don't think that Dennis is available. However, perhaps, you can find another CPA who is familiar with the cited regulation. | |
| 30 December 2006 | |
| Riley, thanks for the info. You, Dennis, the EA (the qualified professional I found), and apparently the regulation agree, so I think I'm comfortable with the answer. The EA is simply going back for cross-check (can't fault him for that). Thank you for the regulation either way; I will be sure to bring it to his attention at our next discussion.
I also think the EA is going to become my tax preparer... | |
| 1 January 2007 | |
| Riley: Did you mean Reg. 1.163-1(b)? | |
| 1 January 2007 | |
| Absolutely correct. Sorry about the typo. I will edit that page. | |
| 19 February 2007 | |
| Hi - I saw that you were very helpful on other persons inquiries, maybe you can help me
My wife had a primary residence, but we sold it and separated in June 2006. My divorce was finalized by year end 2006. The mortgage was in both our names and it was paid from a joint account (i was primary). The house payments were made from my income only. She did not make any deposits into that account (i can prove that).
Do IRS regulations permit her to deduct this 50% interest expense, even though she did not contribute any money towards those payments? We lived in Maryland.Sctybones 15:12, 19 February 2007 (CST) | |
| 19 February 2007 | |
| Hi - I saw that you were very helpful on other persons inquiries, maybe you can help me
My wife had a primary residence, but we sold it and separated in June 2006. My divorce was finalized by year end 2006. The mortgage was in both our names and it was paid from a joint account (i was primary). The house payments were made from my income only. She did not make any deposits into that account (i can prove that).
Do IRS regulations permit her to deduct this 50% interest expense, even though she did not contribute any money towards those payments? We lived in Maryland.Sctybones 15:12, 19 February 2007 (CST) | |
| 19 February 2007 | |
| Maryland is not a community property state; consequently, I see no way for your wife to deduct any portion of the interest. | |
| 22 February 2007 | |
| Also, to a certain extent some provisions the divorce decree are not binding on the IRS. You have to follow tax law to determine who can get the deduction, and in this case, it looks like your wife cannot deduct the interest she didn't pay. | |
| 6 March 2007 | |
| In August 06 I was divorced, and my husband has not lived here for 2 years. The house is now in my name. and I have paid property taxes and mortgage for the past year, and have proof of that. There is no mention in my divorce agreement about claiming mortgage interest and property taxes. Can my husband claim half of the above for the 8 months of 06 that we were legally married? | |
