When spouses decide to file separate returns, the way they split their itemized deductions depends on several factors, including the nature of the expenses and the ownership of the property or account from which the expenses are paid. Here's a detailed breakdown based on the provided information:
- General Rule for Splitting Itemized Deductions: Each spouse should report only their own income, deductions, and credits on their individual return. For expenses that both spouses pay for, such as mortgage interest and taxes, the deductions can be divided according to each spouse's separate ownership interests. Other expenses can be divided in any agreed-upon manner, as long as the total deduction claimed adds up to 100%. However, both spouses must use the same method of claiming deductions: either both must itemize, or both must take the standard deduction.
Specific Expenses:
- Mortgage Payments and Real Estate Taxes: If the home is jointly owned, each spouse can deduct half of the mortgage interest and real estate taxes paid. If the home is held as tenants in common, each spouse can deduct half of the real estate taxes paid. However, if the home is held as tenants by the entirety or in joint tenancy, one spouse cannot deduct any of the real estate taxes paid; all of the real estate taxes are deductible by the other spouse.
- Payments to Third Parties: Cash payments, checks, or money orders to a third party on behalf of a spouse for expenses such as medical expenses, housing costs, taxes, tuition, etc., can be treated as alimony if they otherwise qualify. These payments are considered as received by the spouse and then paid to the third party.
- Life Insurance Premiums: Premiums paid under a divorce or separation instrument for insurance on one's life, to the extent the spouse owns the policy, can be included as alimony.
Special Considerations:
- Payments from Separate or Joint Funds: When expenses are paid from separate funds, they are deductible only by the spouse who pays them. If expenses are paid from a joint checking account or accounts considered community property, the deduction should generally be split between the spouses. However, if only one spouse is eligible for a deduction for an expense (e.g., real estate taxes on a property owned only by one spouse), only the eligible spouse can claim the deduction, even if the expense is paid from joint funds.
- Record-Keeping: Each spouse must maintain records documenting who is considered to have paid the expense.
Requirement to Itemize if One Spouse Itemizes: If one spouse itemizes deductions, the other spouse must also itemize because the standard deduction amount becomes zero for the non-itemizing spouse.
In summary, when filing separate returns, spouses must each report only their own income, deductions, and credits. They can split itemized deductions for jointly paid expenses based on their ownership interests or any agreed-upon manner. However, both must choose the same method of deductions (either itemize or take the standard deduction), and specific rules apply to certain types of expenses. Proper documentation and record-keeping are essential to substantiate the deductions claimed.
Sources:
§ 63. Taxable income defined
§ 68. Overall limitation on itemized deductions
https://www.irs.gov/faqs/itemized-deductions-standard-deduction
Publication 1380
Publication 3920 (9/2014)
Publication 504 (2022)
