My spouse and I are married and have a mortgage in both of our names (also paid for from joint funds) at the acquisition debt limit of $750,000. If we file separately, is our deduction reduced because the filing status reduces to debt limit to $375,000 per person or is that we each can only deduct up to half the interest paid on the entire $750,000 mortgage? In other words, if we each claim half of the total mortgage interest deduction does that mean we are only taking a deduction for up to $375,000 of the mortgage?
You are not allowed to "double dip" on any of the itemized deductions when you file married filing separately, so you cannot each take the $750K limit on your individual returns.
If you were legally married at the end of 2019 your filing choices are married filing jointly or married filing separately.
Married Filing Jointly is usually better, even if one spouse had little or no income. When you file a joint return, you and your spouse will get the married filing jointly standard deduction of $24,400 (+$1300 for each spouse 65 or older) You are eligible for more credits including education credits, earned income credit, child and dependent care credit, and a larger income limit to receive the child tax credit.
If you choose to file married filing separately, both spouses have to file the same way—either you both itemize or you both use standard deduction. Your tax rate will be higher than on a joint return. Some of the special rules for filing separately include: you cannot get earned income credit, education credits, adoption credits, or deductions for student loan interest. A higher percent of your Social Security benefits may be taxable. Your limit for SALT (state and local taxes and sales tax) will be only $5000 per spouse. In many cases you will not be able to take the child and dependent care credit. The amount you can contribute to a retirement account will be affected. If you live in a community property state, you will be required to provide additional information regarding your spouse’s income. ( Community property states: AZ, CA, ID, LA, NV, NM, TX, WA, WI) If you are using online TurboTax to prepare your returns, you will need to prepare two separate returns and pay twice.
<<if we each claim half of the total mortgage interest deduction does that mean we are only taking a deduction for up to $375,000 of the mortgage?>>
If you file separately and you each claim 50% of the mortgage interest deduction, then you are each taking a deduction for up to $375,000 of the mortgage.