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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: joeco316 on January 11, 2017, 10:17:54 AM

Title: Mortgage Interest Deduction Question
Post by: joeco316 on January 11, 2017, 10:17:54 AM
Hello,

Longtime reader, first time poster here. I have what I assume will be a fairly easily-answered question:

My fiancé and I purchased our first home in September 2016 in a suburb of Philadelphia, PA. We own it jointly. I've been trying to find answers via google as to how (or how best) to deduct the interest we have paid when we file our taxes, but I can't seem to get a clear one. She pays the mortgage from her personal checking account, however I give her half of the money for the payment each month.

Can we each deduct half of the interest when we file or will she have to deduct all of it and then split the proceeds with me after the fact? If both are possible, is there one method that is better than the other (other than the obvious simplicity of us not having to split it up afterwards that the first option would provide)?

Thanks for your help!
Title: Re: Mortgage Interest Deduction Question
Post by: catccc on January 11, 2017, 12:36:06 PM
I don't know your numbers (total mortgage interest, state income taxes, real estate taxes, charitable contributions, etc.)

But generally speaking, if you are not married and therefore filing separate returns, it makes sense to consolidate all the possible itemized deductions onto one return and let the other person take the standard deduction.
Title: Re: Mortgage Interest Deduction Question
Post by: catccc on January 11, 2017, 12:41:56 PM
You'll probably want the person earning more (and therefore paying more in state/local income taxes) itemizing, while the lower earner just takes the standard deduction.
Title: Re: Mortgage Interest Deduction Question
Post by: honeybbq on January 11, 2017, 01:07:03 PM
Hello,

Longtime reader, first time poster here. I have what I assume will be a fairly easily-answered question:

My fiancé and I purchased our first home in September 2016 in a suburb of Philadelphia, PA. We own it jointly. I've been trying to find answers via google as to how (or how best) to deduct the interest we have paid when we file our taxes, but I can't seem to get a clear one. She pays the mortgage from her personal checking account, however I give her half of the money for the payment each month.

Can we each deduct half of the interest when we file or will she have to deduct all of it and then split the proceeds with me after the fact? If both are possible, is there one method that is better than the other (other than the obvious simplicity of us not having to split it up afterwards that the first option would provide)?

Thanks for your help!

The best way to not get audited is to have the person who's name is listed first on the bill/mail correspondence claim it, usually on the 1098 form.
http://peopleof.oureverydaylife.com/two-unmarried-people-claim-mortgage-interest-tax-purposes-3855.html
Title: Re: Mortgage Interest Deduction Question
Post by: seattlecyclone on January 11, 2017, 04:48:00 PM
Publication 936 (https://www.irs.gov/publications/p936/ar02.html#d0e1912) is somewhat clear about this situation. (emphasis mine below)

Quote
If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. Show how much of the interest each of you paid, and give the name and address of the person who received the form. Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13.

Similarly, if you are the payer of record on a mortgage on which there are other borrowers entitled to a deduction for the interest shown on the Form 1098 you received, deduct only your share of the interest on Schedule A (Form 1040), line 10. Let each of the other borrowers know what his or her share is.

What matters is who paid how much. If you each paid half, you can each deduct half. If one person paid the whole thing, they can deduct the whole thing. There doesn't seem to be any freedom to allocate the deduction in any way other than based on actual payments.

However your situation could be interpreted two ways. The full amount came out of her checking account, so perhaps she is entitled to the full deduction. However you repaid her exactly half each month, so perhaps you're each considered to have paid half. I'm not sure if there's any official guidance on it. Seems to me like half-and-half is the more logical choice.

Others are right that you may find it more advantageous for one or the other of you to claim the entire amount, especially if that means one of you would then claim a bunch of itemized deductions while the other one picks the standard deduction. Be that as it may, that person needs to actually pay the whole amount. Now remember that money is fungible. If the two of you were to come to an agreement that Partner A will pay the mortgage while Partner B will pay for groceries, gas, utilities, etc., such that you each pay about the same amount overall, I see no reason that wouldn't be legitimate.