Not every marriage has a happy ending. If yours dissolved in 2025, your tax situation this spring will look a little different. And if you owned a home with your ex-spouse, things could get complicated.
“It’s a little weird in the first year,” says Kimberly Miller, founder and chief divorce educator for PartWise, a divorce education platform. “You can end up with issues when both people .”
Two people trying to claim the same deductions for mortgage interest and real estate taxes can trigger government reviews and lead to refund delays or other headaches. Newly divorced people need to work out an agreement as to who is filing for what before any forms are sent to the IRS.
Mortgage Deductions May Be Split
A person’s marital status on the final day of the year determines how they will in the spring.
“They will either file as a single taxpayer or head of household,” says Nicole Romito, a certified financial advisor and certified divorce financial analyst with Private Vista, a Chicago-based wealth management firm. The latter is available to unmarried people who pay more than half a household’s expenses and have at least one qualifying dependent.
The good news is that mortgage interest can be divided between both ex-spouses’ returns. The bad news is that it isn’t as simple as splitting the cost down the middle.
For instance, mortgage interest paid while a couple was still married would be split, according to Miller. After that, how much each person paid toward the will determine how much interest each party can claim.
“The No. 1 thing is that you have to be on the mortgage,” Romito says.
According to IRS rules, only those with legal or equitable ownership in a property can claim a deduction for mortgage interest. That typically means you must be legally obligated to pay the debt on the house. However, if your name is not on the mortgage but is on the title, that may also qualify. Speak to a tax professional to confirm whether your situation qualifies for an interest deduction.
Your lender will only issue one that lists all the interest paid for the year. If two unmarried people are sharing the interest deduction, one will need to note on their return that they did not receive a 1098 form. They will also have to provide the name and address of the person who received the tax form.
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Divorce Decree Dictates Terms
Ex-spouses shouldn’t be trying to determine if and how each will claim mortgage interest and property tax deductions after the divorce, though.
“Hopefully these are issues people are raising when they negotiate their divorce settlement,” says Patrick Kilbane, partner and wealth advisor with Ullmann Wealth Partners in Jacksonville, Florida. “If they don’t include it in their settlement, it’s a problem.”
The divorce decree includes provisions related to dissolving a marriage, from how assets are split to how custody of minor children should be shared.
“Many, many divorce decrees do not address taxes, and that’s a big mistake,” Miller says.
If there are questions later about how taxes are to be handled or who is entitled to what deductions, this document should contain the answers.
“You really have to follow what the divorce decree says,” says Michael Brennan, tax principal with Baker Tilly, an advisory, tax and assurance firm.
The decree can include unique provisions, such as one person continuing to make for the other person instead of paying spousal support. That means mortgage-related deductions can be a point of negotiation during the settlement process.
Since only those who itemize their deductions can claim mortgage interest and on their federal tax return, a spouse who doesn’t itemize might want to offer them to the other person in exchange for cash or other assets.
“This is something they should be talking about to their tax advisor,” Romito says.
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Act Fast to Claim Larger Capital Gains Exclusion
Income taxes aren’t the only thing to consider when it comes to your house. As a married couple, you were entitled to exclude $500,000 of a home’s appreciated value from capital gains tax when it was sold. However, single people can only exclude $250,000.
If you sell the house relatively soon after the divorce, you may still be able to exclude a total of $500,000. “Each spouse owns 50%, and each spouse can claim $250,000,” according to Kilbane.
To qualify for the exclusion, someone must pass both ownership and use tests. Those require that a person live in a home for two of the previous five years and use it as a primary residence for two of the previous five years.
In the event you have a capital loss on the sale of your home — perhaps you just purchased it and prices have dropped in your area — that amount can be used to offset up to $3,000 in capital gains or ordinary income annually.
“You can carry that loss forward indefinitely,” Kilbane says. “It’s really an asset to save on capital gains.” That makes it another potential negotiating point during a divorce settlement.
In some divorces, one spouse buys out another spouse’s share in a home. “That has to be done carefully so it doesn’t trigger an actual sale,” Brennan says. When done correctly, this buyout isn’t a taxable event.
Before you file your taxes this spring, be sure you understand the provisions of your divorce decree as they pertain to mortgage tax deductions. If your decree is silent on the matter, be sure to confer with your ex-spouse before filing to ensure you both don’t claim the same deductions.
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