Divorced in 2008-Dividing up itemized deductions

[Penelope]

A client who divorced in Sept 2008 wants to know what portion, if any, she can deduct of the mortgage interest and real estate taxes paid while she was married.

As I understand it, her ex is making non-taxable payments to her toward $40,000 owed for equity in the home. She will have received $5,000 to $10,000 of these payments in 2008. He retains ownership of the home.

The ex will receive the form 1098 showing mortgage interest paid in 2008, and perhaps real estate taxes paid.

If the divorce decree is silent (and she says it is) on these matters, does she have any grounds for taking part of these deductions on Sch A? It is possible that her ex will agree to a fair allocation.

Thank you.

[jimmcg]

Before you do anything obtain and read a copy of the court issued divorce decree and obtain the facts for yourself.

[Penelope]

If the decree is silent....

What are the options? I will get a copy of the divorce decree, to aid in any negotiations with the ex, and to be sure we are on solid ground, as you advise. Thanks.

[Jesse]

It also could depend on what state you are in. For example community property state laws may dictate how you handle the deductions.

[Penelope]

The state is Georgia

It's not a community property state, unless I'm mistaken.

[Kram BergGold]

My view

Assuming both names are on the deed and mortgage then each deducts the portion they actually paid.

[Jesse]

http://www.irs.gov/publications/p504/ix01.html

I tried to copy the table 5 but it didn't work. Try the above link and check out the Jointly-owned home.

[Penelope]

Allocation of itemized deductions paid while married

Assuming both names are on the deed and mortgage then each deducts the portion they actually paid.

Thanks. Just to clarify, for the benefit of other readers -- Both spouses owned the property WHILE they were married. The Ex is now the sole owner of the home. All payments he makes to my client are for the property settlement and are NOT alimony, if my client is correct.

The answer to my question --Whether my client can take a "reasonable" allocation of the deductible expenses they paid while married -- probably depends on 1) what the divorce decree says or, if it is silent 2) what they can agree to. If they can't agree, then it's another problem!

And, I'd like to see that divorce decree, as suggested already.

Thanks for the help to everyone. Any more comments will be appreciated, too.

[Penelope]

I read the entire publication

This was an interesting publication. I don't believe Table 5 applies, though, because my client no longer owned the house after the divorce. Table 1 was about dividing up expenses for married taxpayers filing separately, and though it's not my client's situation, perhaps it would be reasonable to follow that same logic.

Thanks for this help.

[Edsel]

Joint Checking Account

It is difficult to defeat a 50-50 split if the payments were made from a joint checking account. But if one spouse owns and the other doesn't, or one spouse works and the other doesn't, it would appear only one spouse could benefit from the deduction anyway and why would the non-benefitting spouse make such an issue.

Except for spite, or a hard-to-deal-with attorney.

These are the worse kind of situations to deal with, and sometimes you can work through the itemized deduction split with common sense instead of regs and court cases. But many times no one is interested in common sense.

In modern times, we have to be unisex in our comments, and use "spouse" instead of "husband/wife." To show how far we've come, I remember the 1977 Alabama tax return, back in the days where a family could save $45 by filing separate instead of married. They called the tax return the 40-S, and it divided the income and expenses into two columns. The first column was called "principle earner" and the second column was simply called "wife." The NOW people jumped all over this, and the columnar headings were changed the next year. Lots of embarrassment in Montgomery.

[Penelope]

50/50 split sounds good!

It is difficult to defeat a 50-50 split if the payments were made from a joint checking account. But if one spouse owns and the other doesn't, or one spouse works and the other doesn't, it would appear only one spouse could benefit from the deduction anyway and why would the non-benefitting spouse make such an issue...

Will ask client more about the joint checking account -- That could be a sticking point. I know what you are saying about income discrepancies and the like.....In this case, I believe the Ex husband and Ex wife (my client) actually earned about the same amount...around $80,000 each.

Also, I was divorced so I know things can get fractious! Still, in this case, I believe these Ex's are somewhat reasonable with each other...So far. (If he isn't able to continue making property settlement payments, though, it could be another story!)

[Burke]

For the period of time when they were married and joint owners, If both parties are amenable, you can use a method most often utilized when persons file MFS: (1) 50/50 split; (2) pro-rata percentage based on each persons income; or (3) actual amt each paid out of own funds. After the divorce, it appears the payments husband is making to wife amount to an installment sale of her interest in the home, and cannot be apportioned to either interest or taxes by either party.

[Penelope]

Very helpful

Thank you -- This is the type of confirmation I was hoping for.