The IRS tax rules allow you to deduct mortgage interest paid on your principle residence. The deduction does not depend on your filing status, or vary with the owner's marital condition, whether single, married or divorced. But a divorce can complicate matters, especially if the responsibility for paying the mortgage or the ownership of the house changes.
Mortgage interest remains deductible after divorce, although various other tax implications will likely occur when the divorce is finalized.
Check Your Post-Divorce Filing Status
If you are legally divorced during the year, then your filing status is probably going to change. The IRS considers your marital status only on the last day of the year. If on that day you are legally divorced, you can't file a joint or "married, separate" return. You must file as single or as head of household. To meet the guidelines for head of household, you must be unmarried, caring for a dependent for at least half the year, and paying at least half of household expenses.
If you are divorced during the year, then your former spouse cannot have lived in the home during the last six months of the year.
The Relationship Between Divorce and Taxes
The IRS allows the mortgage interest deduction to the homeowner regardless of marital status. You must itemize deductions on Schedule A to take the mortgage interest deduction. It makes sense only if your itemized deductions exceed the standard deduction, which in 2017 reached $6,350 for a individual filing as a single, and $9,350 for those filing as head of household.
In 2018, the standard deduction has almost doubles to $12,000 (single) and $18,000 (head of household) respectively. 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.
Divorce and the Jointly Owned Home
A divorce agreement should name the party responsible for paying the mortgage interest on a jointly owned home, as well as the right of one party or the other to live in the house. If you are paying all of the interest and still living in the house after the divorce, then the IRS will continue to allow you a mortgage interest deduction, even though your filing and marital status changed.
If the other spouse lives in the house, you may deduct half the interest paid as alimony and half as mortgage interest. Alimony comes directly off your gross income; it is not included in itemized deductions. The spouse living in the residence must report the alimony as income but may still deduct half of the mortgage interest paid on the home, as long as it remains jointly owned.
Tax Consequences of a Change of Ownership
If the house changes ownership as a result of the divorce, then there will be some tax consequences. If you take sole ownership of the home, but your ex-spouse lives in it, you may deduct the full amount of mortgage interest; you can't claim any of the interest payment as alimony.
If your ex-spouse owns the home and lives in it, but you take responsibility for the house payments, then you deduct that money as alimony; your ex-spouse would have to report the alimony as income, but could also claim the mortgage interest deduction as the owner.
Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.