My wife and I are filing as Married, Filing Separately. We legally co-own our home and make mortgage payments from a joint account. However, I am the sole borrower on the mortgage. Per my understanding, qualifying mortgage debt is capped at $375,000 for an individual filing as MFS, and because our mortgage is more than $375,000, I cannot claim the full interest as a deduction.
My question is whether my wife may claim a deduction when she is not on the mortgage. Is it sufficient that she is on the home deed and payments are made from a joint account? Or does she need to be legally liable for the debt to claim the deduction? Do any state laws come into play?
Also, I know that MFS is usually not advantageous, but we have our reasons for filing this way. Please for the purpose of answers take this as given and focus on the mortgage question. Thank you in advance!
Yes, according to IRS Publication 936 (extracts below), your spouse can claim interest paid on a home loan secured by a home that she has an ownership interest in. Since she is on the deed and has paid interest on the loan she can claim a deduction.
Each of you enter the form 1098 information. Split the box 2 amount 50/50 and the split the box 1 amounts according to the agreed amounts paid. The total between you should equal the form 1098 amounts.
The interest deduction limitation due to the loan amount will apply to any loan amounts over $375,000 for you and over $375,000 for your spouse independently since you are filing separately.
As far as applicable state laws go they will govern what document(s) are needed proving an ownership interest. Typically a deed for property.
"Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). The loan may be a mortgage to buy your home, or a second mortgage.
You can’t deduct home mortgage interest unless the following conditions are met.