Divorced- Claiming Deductions

[Beth]

Client's divorce became final in 2007. He now files as single, she as HOH.

Divorce decree is silent on deductions.

If she did not take any of the mortgage interest, can he take all of it? I had read this had to be split 50%, but I am not sure if that is only in disputes.

[Burke]

Is he paying any of it? And is his name on the loan? Property still jointly owned?

[Beth]

Divorced- Claiming Deductions

The house was owned jointly, and sold about 30 days after they split mid-year. She did have a part time job, and the husband provided the bulk of the income. SO yes, she contributed to the household income-but they did not have a he paid she paid arrangement.

The poor guy cashed in a bunch of retirement plans to pay the balance of the mortgage, and tax liability looks pretty large.(he filed an extension) I am looking for any and all deductions that might be available.

Thanks!

[Nashville]

Who Paid

Beth, who actually PAID the interest?

If one spouse legally owed on the mortgage and actually paid the payments, that spouse would be entitled to the deduction. The 50-50 doctrine that you've heard of is most likely what happens if the payments came from a joint account or if nobody can figure out which specific party has paid to the exclusion of the other party.

Often a decree will direct one spouse or the other to pay and/or award ownership of the house to one spouse or another. However, you have to look past the decree. The decree cannot strip the bank of its lienholder position, and the bank can still force either party to be responsible for payment irrespective of the decree.

There also becomes a question of qualifying personal residence if a non-resident spouse continues to pay interest on a house he/she is not living in.

[Nashville]

Closing Statement

I am looking for any and all deductions that might be available.

Beth, scan the closing statement on the property sold (as well as any property bought, if this also occurred).

The closing statement looks like a two column document with one column due from seller and the other due to buyer. It lists many different types of expenses - some are deductible but often some of them can be deducted. Conventional forms 1098 do not always pick up the prepaid interest or points, prepaid taxes to fund the escrow, etc.

I've been in the same shoes as this guy and I know he'll appreciate anything you can do.

[Burke]

I have split these in the past where the mortgage interest and real estate tax was allocated proportionally based on each party's income contribution to the household. If her part-time job was negligible income compared to his, I don't think you will have any problem allocating the deductions to him. Especially if she did not claim any of it.

[Beth]

Divorced- Claiming Deductions

It was paid from a joint account. Both qualitfy as resdidents

They seperated in May, and alternated weeks in the house with their child until sold and closed- one month only. Divorce final in the fall. Both were legally liable for the mortgage at the time of close, and at the time he cashed in his retirement plans to pay the balance.

The final house payment MIGHT have been made on an account in his name only, I need to check on that.

Decree silent on this-I suppose because the house was sold before the divorce.

Her minimal income combined with HOH would have taken care of any tax liability, so she did not need the deduction.

Thoughts??

[Nashville]

I would allocate to him

Based on your presentation of the events, I would have no qualms about allocating all of the paid interest to him. So long as the 1098 is issued under his social security number, the IRS won't have a reason to involve themselves unless they get drug into it.

The ex-wife should be easily able to live with him claiming all the interest unless she wishes to create a problem just for spite.

[Davc]

Conventional forms 1098 do not always pick up the prepaid interest or points, prepaid taxes to fund the escrow, etc.

.

Money going into the escrow account to pay taxes when due is not an expense until they're actually sent from the mortgage company to the taxing authority.

[Jesse]

Look at the state laws to help determine. If you are in a community property state and joint ownership paid from joint funds would be split 50/50 irregardless of the income proportions.

Do you know if she will be taking the standard deduction or itemizing?