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Level 1

# California, Community property MFJ vs MFS filing based on mortgage interest for Federal return

Was trying to calculate mortgage interest deduction I can take based on MFJ and MFS limits of 750k and 375k.

Approx numbers

Paid mortgage interest of \$50,000 on \$1.5M of avg mortgage balance

For MFJ , based on IRS publication the calculation is ( \$750k/\$1.5M ) x \$50k= 0.5 x \$50k = \$25k

For MFS, I split interest paid by half i.e. \$25k each. Kept loan amount the same of \$1.5M.

Hence, based on IRS publication the calculation is ( \$375k/\$1.5M ) x \$25k= 0.5 x \$25k =\$6.25k

If both spouses itemize and claim the MFS based mortgage interest deduction, it comes to \$12.5k which is half the MFJ deduction.

Common sense tells me this is not correct but the publication and internet says this is how I should do it. It makes sense only if I divide the mortgage balance in half as well for MFS but guidance says use loan balance.

Is calculation flawed?

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5 Replies
Expert Alumni

## California, Community property MFJ vs MFS filing based on mortgage interest for Federal return

No, this is correct. In fact in the IRS worksheet, it says to use the average of all balances and makes no mention of splitting the balances by 1/2. Imagine if you used 1/2 of the balance, your mortgage interest would be \$25,000, the same as married Filing Jointly. This wouldn't make sense.

No, the calculation is not flawed but correct.

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Level 1

## California, Community property MFJ vs MFS filing based on mortgage interest for Federal return

Thanks for taking time to respond. Just to ensure I conveyed my thoughts clearly,

if I filed MFJ, I get to deduct \$25k

if I file MFS, my calculations come to \$6.25k each which is \$12.5k.

I would expect it would be 12.5k each which is half of MFJ and together it is 25k.

Expert Alumni

## California, Community property MFJ vs MFS filing based on mortgage interest for Federal return

I have been looking for clear guidance from the IRS and can't find any. My suggestion is to use \$50,000 the in the equation rather than \$25,000.  This way you should be able to deduct \$12,500 instead of \$6.25K because this makes much more sense. The ratio is already reduced by the \$375K limitation that already cuts your reportable interest by 1/2.

I am using a quote from IRS PUB 936 on page 13 of the publication. This is an instruction for filling out the mortgage Limitation Worksheet. In the pub, it suggest to use the amount reported on form 1098.  This means the full interest amount.

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Level 1

## California, Community property MFJ vs MFS filing based on mortgage interest for Federal return

i also could not find IRS guidance. I wanted to clarify if it is intended to penalize MFS over MFJ by this or is it something that is just missing.

looks like there is no intention to penalize?

Expert Alumni

## California, Community property MFJ vs MFS filing based on mortgage interest for Federal return

There is no intention to penalize. in fact if you examine the logic in the way I presented it:

1. if there was no mortgage limitation, you would both split the \$50,000 50/50. Which means \$25,000 to you and \$25,000 to your spouse.
2. It would seem that the mortgage limitation is now \$25,000 and that should be split 50/50 leaving \$12,500 each.

Your original assumption was correct and I appreciate you pointing this out to me.

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