Mortgage interest and property tax deduction percentage

[eagle99]

Divorced a few years ago; ex and I sold our primary residence this year. We were both still on the deed as husband and wife, both able to utilize the primary residence exclusion, both filing Single this coming April. Splitting assets 50/50. Each got a separate 1099S for half the sale amount in our own name. 1098 will show both our names.

If my ex uses the standard deduction, am I able to itemize and deduct all of the mortgage interest and property tax for the year? How does the government reconcile this? Would this cause a red flag / audit? I ended up paying all the mortgage interest and property tax, but don't want to go thru an audit to prove it.

[Anonymous_]

@Mike9241 

[Opus 17 · Accepted solution]

Because you are legally unmarried (you said the divorce was final a few years ago), the decision of one person to itemize deductions has no impact on the tax return of the other ex-spouse.  Each co-owner may deduct mortgage interest and property taxes that they actually paid in 2023.   If you paid all the interest and taxes, you can deduct them.  

(Remember that you must adjust your property tax deduction for the sale date.  For example, if you paid a full year of taxes in January for all of 2023, and sold in April, then the buyer should have given you a credit for the taxes that you pre-paid that covered their ownership period of May-December.  Even if you didn't get such an adjustment, you must pro-rate your property taxes because you can only deduct taxes you paid for the period of time you owned the home.  Alternatively, if taxes are paid in arrears, and the buyer will pay for 2023 in January 2024, then you should have given the buyer an adjustment for the January-April taxes and you can deduct them as if you paid them to the taxing government.)

If audited, you may be required to prove you paid the mortgage, but this is not unusual, because taxpayers aren't allowed any deduction or credit unless they can prove they are entitled to it, and the burden of proof is always on the taxpayer.  But there is nothing here that creates a special risk of audit.  

[TomD8 · Accepted solution]

Since you paid all the mortgage interest and property tax, then if your name is listed first on the 1098 at year's end, just enter the 1098 as is onto your tax return.

If your name is listed second on the 1098, or if it's not listed at all, then when you enter it into TurboTax check the appropriate box on the page titled "Do any of these situations apply?"  The program will then request the other taxpayer's identifying information.  

In either case, be sure your ex-spouse does not claim either deduction on his tax return (not an issue if he takes the standard deduction).  The IRS’s concern is that the same deduction isn’t claimed by two taxpayers.

[eagle99]

Thank you @TomD8 & @Opus 17  for the very helpful information!

Oops, I haven't been entering ex's SSN in previous years as @TomD8 suggested, and have paid all the mortagage and property taxes and claimed them. Both our names appear on 1098; I am listed second on the 1098; the last 4 of ex's SSN show on the 1098.

1. Will I have a problem since I did it wrong on previous years? Do I need to amend? I'm positive ex never claimed the deduction and will not this coming tax filing.

2. Will I still be able to e-file if the mortgage interest is listed on Schedule A Line 8b and attachment is created?

3. Do you know anywhere that has a photo/file of what form/attachment TurboTax generates with the supplemental information that @TomD8  is referring to after clicking "Do any of these situations apply?" ? (I don't currently have TurboTax and would like to see the format and what info is on it.)

4. The address I enter for the other person is the address they use for filing? The 1098 has the address of the house that was sold.

5. Does noting my ex's SSN, name & address create a greater risk of scrutiny or audit? While I'm up and up on my taxes and believe my ex is as well, my ex is unusually paranoid of audit. And tho we are amicably divorced, don't want to cause any extra grief for my ex.

Thanks in advance for your help!

[Opus 17]

1. Only the IRS can answer that.  The idea behind the box for "my name is not on the 1098 but I am claiming the interest anyway" is so the IRS can (if they want to) cross-check the other person's return.  It could also be a flag for them to inquire to make sure you really are a property owner and entitled to the deduction.   But it has obviously gone through ok so far.

2. Yes.  Although Turbotax doesn't allow free-form PDF attachments, there are certain types of explanatory statements that have defined locations in the XML e-file format, and as long as explanation has a place in the e-file format, it should go through.

3. No, you would have to somehow inspect the XML file itself. 

(To get slightly technical: The e-filed return is an XML file that has field codes (labels) followed by data.  Some of the fields have rules (for example, income must be a dollar amount with no abc letters.  Number of dependents must be a whole number, not a fraction.  SSN must be exactly 9 digits.  And so on.  Some fields can be blank, some must be filled in.  I suspect that the information requested here will go into a text field included in the header for the 1098 information.  The exact specifications of the XML file are available on the IRS web site, if you really wanted to look.)

4. Use their current mailing address (where the IRS would send them a letter to inquire about the interest).  It does not have to be a current or former residence, but where they get mail.  Use the last known address if you don't know the current address.

5. It gives the IRS the ability to cross-check.  For example, if there is no 1098 with your SSN, is there one with your spouse's SSN, and did you spouse also claim the same interest, or not.  No one officially knows what triggers audits, although there are some intelligent guesses, and the fact that you got this far without problem would suggest this is a low risk situation.