Who Has Permission to Claim the Mortgage Interest Deduction?

Who Has Permission to Claim the Mortgage Interest Deduction? by Fabienne Swartz

{2:56 minutes to read} Many accountants are advising their clients that, because the spouse’s name is not on the mortgage note, she cannot claim the mortgage interest on her tax returns.

Sometimes couples own a house jointly, meaning both names are on the deed. However, only one of them is listed as the “Borrower” on the mortgage note. Then they get a divorce. They agree that the wife will stay in the residence and that she will make the mortgage payments, pay the property taxes, and claim the appropriate tax deductions. Then her accountant tells her that she that she can’t.

Case Study: This exact scenario was happening to one of my clients, and because I was not sure, I said, “Let me check with our accountant.”

The wife’s name was on the deed, but she was not named on the mortgage note. At some point, the husband had refinanced and, since he was the one making the money, the bank was happy with only his signature. It seemed more expedient to refinance under just the husband’s name.

The accountant at the continuing education class I was attending advised me that one cannot claim the mortgage interest deduction if their name is not on the mortgage. Then I asked another accountant, and he said, “Yes, she would be able to claim the mortgage interest deduction.”

Who was right?

After conducting hours of research to “break the tie” between these two professionals, including publication 936 – I still did not have a definitive answer.

Next, I met with Certified Public Accountant (CPA) Steve Ganns, who told me that he would claim the interest deduction. Steve explained that the Internal Revenue Service (IRS) would link the two Social Security numbers of the previous spouses together for awhile.

As long as the ex-husband does not claim the same deduction, the wife can claim it, and there should not be a problem. If either of them were to claim a deduction that they were seemingly not entitled to, then the IRS would ask for an explanation.

If contacted by the IRS, the ex-wife should provide them with copies of the following:

  • Deed – to show that her name is on it
  • Bank statements – to show that she is making the mortgage payments
  • Divorce settlement – to verify the agreement between the two that she would live in the house, is responsible for mortgage payments, and is entitled to claim the mortgage interest deduction

If you do not have the cooperation of your ex-spouse, Steve recommends that you go to the bank and ask them to add an Addendum to the Mortgage without refinancing.

If you are recently divorced and not sure about claiming the mortgage interest deduction, contact your accountant. We do not recommend that you call the IRS and start asking questions, as this will only draw their attention to your claim.

Who will you call if you have a question about mortgage interest or other tax issues that may come up after your divorce?

Fabienne Swartz JD (Belgium) CDFATM
Certified Divorce Financial AnalystTM
www.financially-strong.com
500 Mamaroneck Av.
Suite 320
Harrison, NY 10528
(914) 798-6940

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