Whether a wife can claim a deduction for interest paid for a mortgage held in her husband’s name will primarily depend upon their filing status and whether the wife actually made the payments. This article assumes the husband and wife are in a marriage that is recognized under the Internal Revenue Code. In addtion, it should be noted that this is a very difficult area of tax law and a CPA or tax attorney should be consulted regarding your specific situation.
Qualified Mortgage Interest
For mortgage interest to be deductible for federal tax purposes, it has to qualify under Internal Revenue Code Section 163. This states that the interest has to be from either a mortgage used to purchase a home or from a home equity loan. In either case, the loan obligation must be secured by a qualified residence which is typically a primary residence or a vacation home. To be secured means the bank can legally take the property from a borrower who does not pay the mortgage. In addition, mortgage interest cannot be deducted on more than $1 million of principal. The principal limit for a home-equity loan is $100,000. Qualifying mortgage interest and home-equity loan interest is usually reported to the taxpayer on Form 1098.
Married Filing Jointly Filing Status
Married Filing Jointly is a filing status option under which spouses file a combined federal tax return. A wife can claim a mortgage interest deduction for a mortgage held in her husband’s name if the couple files as Married Filing Jointly since the couple is filing just one return. The mortgage interest deduction is claimed on schedule A of Form 1040. However, if a couple files as Married Filing Jointly, then they are both responsible for any resulting tax liability.
Married Filing Separately
If taxpayers choose to file as Married Filing Separately, then a wife may be able to deduct mortgage interest due on a mortgage held in her husband’s name. When a couple files as Married Filing Separately, if one spouse decides to itemize deductions, the other spouse must also itemize. Treasury Regulation Section 1.163-1(b) states that a spouse does not have to be named on the mortgage in order for that spouse to deduct the mortgage interest as long as the spouse has an ownership interest in the property that secures the mortgage and the spouse claiming the deduction actually made the payments. The issue of who made the payments can be tricky when the married couple has a joint checking account or when they live in a community-property state. In addition, both spouses cannot claim a deduction on their returns for the same mortgage interest.
Head of Household
A married taxpayer may be allowed to file as Head of Household if she lives apart from her spouse for the last six months of the year. She must also pay more than half the cost of maintaining a household in which a qualifying dependant lives. If a wife files as Head of Household, she may be able to claim a home mortgage interest deduction if she actually pays the interest and the home mortgage is secured by a residence in which she has an ownership interest. In addition, if the interest is reported on Form 1098 under her husband’s name, then the wife will have to attach a statement to her tax return. Problems will arise if both the husband and wife try to claim a deduction for the same amount of mortgage interest on their separate returns.