When married filing separately, and each claiming 50% of the mortgage interest deduction , should Box 2 of Form 1098 also be split 50/50 between returns?

[taxnovice3092]

My spouse and I are married filing separately. We are each itemizing deductions and each claiming half of the mortgage interest paid from our joint account on our mortgage and reflected on Form 1098. When inputting Form 1098, it is clear we should each only enter half the amount for Box 1 (mortgage interest), but should we also each enter half the amount for Box 2 (outstanding mortgage principal)? Our outstanding mortgage principal is $664k, so this exceeds the $375k cap when married filing separately. But shouldn't we be able to claim the full amount of the interest between the two of us (i.e., we can each claim $332k of our shared $664k mortgage and still each be under the $375k limit)?

[CesarJ]

When filing Married Filing Separately (MFS), you each report only the portion actually paid, in your case, 50% each.

For Form 1098 entry:

• Box 1 (Mortgage Interest Paid): Each should enter 50% of interest paid.
• Box 2 (Outstanding  Mortgage Principal):  Each should enter 50% of the outstanding principal balance.

Each of you can claim your half as long as your reported principal (half of $664,000) is under the $375,000 MFS limit.

[taxnovice3092]

Great - thank you! One follow-up question: my spouse's name is listed first and mine is listed second on Form 1098. His social security number is on Form 1098, but mine is not. Do I need to do anything to avoid an audit on my return since my social security number is not on Form 1098? For example, TurboTax has a box for, "Someone co-owns this loan, and I only pay a portion of it" - should I be checking that?

[Vanessa A]

Yes, you can, it won't hurt, but you don't have to. Since you are filing separately, you can check the box that says someone co-owns this loan and I only pay a portion of it". You will then be able to enter what portion of the loan you pay.  It should then give you a drop down and will let you select that your spouses social security  number is on the 1098.  This will produce a statement that is attached to your return saying you share this. 

In the end, if you are married filing separately, you will need to include their SSN on your return and they will have to do the same with their return.  So since your name is on the 1098, and your returns will be linked, if you don't check the box, it should not create a red flag.