Married filed Separately Mortgage Interest question in North Carolina

[skhaylomsky]

Hi, my wife and I reside in North Carolina and file our taxes as married filing separately (beneficial for her PSLF loan forgiveness program). We took out a mortgage that is only under my name but both names are on the deed/title and we both contribute "equally" towards the expenses from our join account. I also took a home equity loan on this home for home improvements that are both paying back. My understanding is that we divide the mortgage interest by half, but do we divide the outstanding principal in Box 2 by half as well? If we don't divide principal by half, we lose out out on the full benefit as the total principal is $550k (470k for original loan and 80k for home equity) but dividing by half, gives us full benefit. 

[MaryK4 · Accepted solution]

If you are dividing the home mortgage interest on separate tax returns, you will want to divide all the information on the 1098 proportionally to be sure that any limitations on the deductions are calculated.  

[Edited 03/12/23| 12:15pm PST] 

[skhaylomsky]

Thanks, Mary. My concern is that if I don't divide the principal in half, then I'm over the qualified loan amount ($375K for MFS) so I don't get the full benefit of the interest paid. If I'm allowed to divide the principal in half, then I'm under and can receive the full benefit.

[MaryK4]

Yes I see what you are saying, I have edited the answer so that it is corrected.  @skhaylomsky