married filing seperately questions

[GreatGrandma Rae]

Quick Summary of taxpayer history related to these issues:

Taxpayer file for divorce on 11/21/2011. She has resided in a house that is jointly owned with her spouse. Her spouse has not resided in this house since 04/08/2012.

After 04/08/2012, he returned to the house only to pick up mail. Beginning in Dec ,2012 began sleeping at the house no more than one night a week ( sometimes every other week) so that he could go to doctor appointments the next day (located in same city).
In Mid-October he rented a seperate apartment.

Taxpayer opened new checking and savings accounts at time of filing for divorce. She deposits her income checks and pays all bills from these seperate accounts.

***She paid both her house mortgage payments and property tax payments from her checking account. There has been no co-mingling of funds.

Taxpayer will be filing MFS.
Question #1-If taxpayer elects to itemize deductions on her tax return does she have to split the mortgage interest paid since they jointly own the house (even though she made made all the payments) or may she deduct the full mortgage interest paid on her tax return?

Question #2- May she deduct the full amount paid for the property taxes on the personal residence or must she split the deduction (50-50%)?

Question #3- If she determines that it is more beneficial to claim the standard deduction is that amount $5950?(same as for single filer).

[Koss]

Mfs

I'll take the easy part first:

The standard deduction for MFS is the same as the standard deduction for Single.

Remember: When filing MFS, either both spouses must itemize, or both spouses must take the standard deduction. Can't have it both ways.

Someone is going to ask: "Well, what if he won't tell her whether he is itemizing?" There is no answer. You gotta roll the dice. Make sure the client understands the risk of an audit. It's not even clear what would happen in an audit. Suppose she itemizes and he uses the standard deduction. In an audit, will the IRS adjust her return and make her use the standard deduction? Or make him itemize? No one knows. Does it matter who files first? No one knows that either.

Mortgage interest and property taxes...

Is her name on the deed?

If so, and she paid all the taxes, then she can deduct all the taxes.

Did she sign the mortgage note?

If so, and she made all the payments, then she can deduct all the interest.

BMK

[smithtax]

Koss has nailed it.

[thomtax]

I'll take the easy part first:


Remember: When filing MFS, either both spouses must itemize, or both spouses must take the standard deduction. Can't have it both ways.

BMK

Not picking, just a little additional clarification. If you are itemizing, it does not matter to you whether the other party itemizes or takes a standard deduction. The onus is on the other party to match your itemizing.

From the TTB, page 3-14:

"If a taxpayer files MFS and his or her spouse itemizes, the taxpayer cannot claim the standard deduction. A taxpayer filing HOH can claim a standard deduction if his or her spouse itemizes."

LT

[taxea]

Quick Summary of taxpayer history related to these issues:

Taxpayer file for divorce on 11/21/2011. She has resided in a house that is jointly owned with her spouse. Her spouse has not resided in this house since 04/08/2012.

After 04/08/2012, he returned to the house only to pick up mail. Beginning in Dec ,2012 began sleeping at the house no more than one night a week ( sometimes every other week) so that he could go to doctor appointments the next day (located in same city).
In Mid-October he rented a seperate apartment.

Taxpayer opened new checking and savings accounts at time of filing for divorce. She deposits her income checks and pays all bills from these seperate accounts.

***She paid both her house mortgage payments and property tax payments from her checking account. There has been no co-mingling of funds.

Taxpayer will be filing MFS.
Question #1-If taxpayer elects to itemize deductions on her tax return does she have to split the mortgage interest paid since they jointly own the house (even though she made made all the payments) or may she deduct the full mortgage interest paid on her tax return?

Question #2- May she deduct the full amount paid for the property taxes on the personal residence or must she split the deduction (50-50%)?

Question #3- If she determines that it is more beneficial to claim the standard deduction is that amount $5950?(same as for single filer).

? 1. Who paid the mortgage for Jan-April? If she can document that she made payments out of her own funds for the year or portion of she can take the expense but, a. be sure the 1098 is in her SSN number or that she get a letter from the bank that so states. (this way you won't have to get this info if questioned after the return is filed.)

? 2. refer to answer #1

? 3. then she would take the standard deduction if she has no way of determining whether he itemized. It is not her, or your, responsibility to worry about how he filed if she qualifies to file a Sch A. However, if she knows he filed a Sch A one should be prepared for her whether she qualifies for it or not.d

Additionally I think the IRS requires a like filing so they can determine whether both are taking the same deduction and there is no allocation of the original totals on the 1098.

[GreatGrandma Rae]

married filing seperately questions:

The taxpayer paid all mortgage payments and property tax payments..That includes 01/01/2012-04/08/2012 inclusive. All payments were made from her seperate funds.

Her name is on the Deed and she signed the mortgage note.

The taxpayer's spouse is very uncoopertive; would not voluntarily tell taxpayer how he was filing.

He really has very few itemized deductions.

I believe the 1098 reporting uses the spouse's social security number.

I will ask taxpayer to get a letter from the lender confirming that she (taxpayer) signed the mortgage note and is on the deed. Property is held as community property.

Thanks to all 4 people who responded to my questions. Very quick responses and very helpful.

[GreatGrandma Rae]

married filing seperately -responses to questions.

Response to questions asked of 4 members:

The taxpayer paid all mortgage payments and property tax payments..That includes 01/01/2012-04/08/2012 inclusive. All payments were made from her seperate funds.

Her name is on the Deed and she signed the mortgage note.

The taxpayer's spouse is very uncoopertive; would not voluntarily tell taxpayer how he was filing.

He really has very few itemized deductions.

I believe the 1098 reporting uses the spouse's social security number.

I will ask taxpayer to get a letter from the lender confirming that she (taxpayer) signed the mortgage note and is on the deed. Property is held as community property.

Thanks to all 4 people who responded to my questions. Very quick responses and very helpful.

[GreatGrandma Rae]

Married filing seperately- response

? 1. Who paid the mortgage for Jan-April? If she can document that she made payments out of her own funds for the year or portion of she can take the expense but, a. be sure the 1098 is in her SSN number or that she get a letter from the bank that so states. (this way you won't have to get this info if questioned after the return is filed.)

? 2. refer to answer #1

? 3. then she would take the standard deduction if she has no way of determining whether he itemized. It is not her, or your, responsibility to worry about how he filed if she qualifies to file a Sch A. However, if she knows he filed a Sch A one should be prepared for her whether she qualifies for it or not.d

Additionally I think the IRS requires a like filing so they can determine whether both are taking the same deduction and there is no allocation of the original totals on the 1098.

Response:
Unfortunately Spouse's Social Security # is on 1098..Taxpayer paid all mortgage payments from her seperate funds.
1. Does she get a letter from her bank that her account ( from which all mortgage payments were made is a seperate account, she is only one who can sign on that account, etc?l
2. Should she get a letter from the lending institution confirming that she is on title and signed the note, etc . and confirm that her SSN is ................ . ?

Thanks much.

[Koss]

Documentation

1. Does she get a letter from her bank that her account ( from which all mortgage payments were made is a seperate account, she is only one who can sign on that account, etc?l
2. Should she get a letter from the lending institution confirming that she is on title and signed the note, etc . and confirm that her SSN is ................ . ?

I don't think either letter is necessary. She'll have a hard time getting the bank to produce such letters, and there are easier ways to document the facts.

On the surface, bank account statements which show only her name as the account holder are sufficient to show that she is the only account holder. The same statements will show that deposits to that account came from her salary, and that the mortgage and property tax payments were made from that account.

Likewise, a copy of the mortgage note and the deed to the house are sufficient to prove the relevant facts.

She can probably download PDF images of the bank account statements. She can also get an online history of the mortgage account.

She should have paper copies of the mortgage note and the deed in the folder that she received at the closing, back when they bought the house.

If she doesn't have it or can't find it, I would not recommend asking the bank for copies. That will take forever, and the bank will charge fees. She can get copies from the title company, or other agency, that handled the closing. In some areas it is referred to as a closing service. Sometimes it is a law firm. They too can charge a fee, but they may not. And she will be dealing with a local office, instead of some call center at the bank.

The mortgage note and the deed are also available from the county recorder. The documents are public records. Here in Franklin County, Ohio, the documents are available online. And there is no fee.

With all that being said, I would not try to include any of these documents with the return. It is certainly a good idea for your client to have this stuff on file now, instead of scrambling to find it later, if the deductions are challenged by the IRS.

But I don't think you, as the preparer, are required to review these documents. If you have some reason to believe that your client is lying to you, or that she is mistaken, or does not understand your questions, or literally does not know whether she signed the mortgage note, then you have to do some due diligence.

I'm not being facetious. Sometimes an unsophisticated or uneducated taxpayer will get involved in a financial transaction that they do not fully understand. Or they may just forget certain details. It is fairly common, for example, for banks to do a second mortgage where only one spouse signs the note. Many years later, the spouse who did not sign may not remember this.

In your case, if you are confident that you are getting complete and accurate information from your client, I think you can just prepare the return, and make some recommendations about what kind of records your client should have in the event of an audit.

BMK

[taxmom34]

divorced?

OP says filed for divorce november, 2011, is divorce final or not? if divorce was final anytime during 2012 that client could file single or head of household (if qualified) and there would be no concern about ex spouse.

[ttbtaxes]

If you want an authoritative source for your file take a look at Rev. Rul. 71-268. I don't know if the answer is the same if this involves two people in a community property state but I don't do returns for anyone under those rules so I can't comment.

[Gary2]

From the TTB, page 3-14:

"If a taxpayer files MFS and his or her spouse itemizes, the taxpayer cannot claim the standard deduction. A taxpayer filing HOH can claim a standard deduction if his or her spouse itemizes."

The way I've heard it expressed is that if your filing status is MFS, and your spouse itemizes, then your standard deduction is $0. You're not actually required to file a Schedule A, though it's usually silly not to, since typically there's either a state income tax or state sales tax deduction. (I think AK is the only state with neither, though NH comes close.)

[taxea]

I agree with everything Koss said. Also, was there a legal separation that would cover the first two months of the separation or prelimary divorce papers filed?

[joanmcq]

A legal separation is not like a preliminary divorce. It is available to separate for legal purposes if a divorce isn't an option, for example, religious views.

That said, I don't really see the issue here. If she is on the mortgage, her name is on the 1098, even if the spouse's listed first. My ex is still listed first on my mortgage and we've been divorced since 2007. I pay the mortgage and take the deductions. Never had a CP notice. If I do, I'll write a letter (like I've done for many clients) and send in the 1098 showing I'm on the mortgage.

[oceanlovin'ea]

I am of the opinion that if she has enough deductions to itemize, then she should do it. If people are separated and filing MFS, they usually aren't talking to each other. How is one going to know what the other one is doing? If IRS sends out a letter to the one using the standard deduction, then they will have to make a change on their return. GreatGrandmaRae doesn't know what the spouse is doing. She just has to do what is best for her client.

BUT another scenario is if she was doing returns for both of them. She could not tell spouse that he should itemize. She would just have to ask him questions to see if he could or wanted to but she couldn't tell him that he had to. Violation of privacy of wife. That could be a bummer.

Linda, EA