Can One Person Claim All Mortgage Interest if Joint Purchase?

Homeownership often brings with it various tax considerations, including the ability to deduct mortgage interest. For individuals who purchase a home jointly, understanding how these deductions apply becomes particularly important for accurate tax reporting. Navigating the rules surrounding mortgage interest deductions can help ensure taxpayers claim the benefits they are entitled to.

General Rules for Mortgage Interest Deductions

To qualify for a mortgage interest deduction, the interest must be paid on a loan secured by a “qualified home.” A qualified home can be either your main home or a second home. A main home is where you live most of the time, while a second home is one you choose to treat as such. The property must have sleeping, cooking, and toilet facilities to be considered a home for this purpose.

The types of loans eligible for this deduction include mortgages used to buy, build, or substantially improve your main home or a second home. This includes traditional mortgages, as well as home equity loans or lines of credit, but only if the borrowed funds were used for these home-related purposes. Interest on home equity debt used for other purposes is not deductible.

For loans incurred after December 15, 2017, the deduction is limited to interest paid on the first $750,000 of qualified home acquisition debt ($375,000 for married individuals filing separately). For mortgage debt incurred on or before December 15, 2017, higher limits apply, allowing deduction on the first $1 million of debt, or $500,000 for married individuals filing separately. These limits apply to the combined debt on both a main home and one second home.

Allocating Mortgage Interest in Jointly Owned Homes

When a property is owned jointly, the allocation of mortgage interest deductions depends on who is legally obligated to repay the mortgage and who actually makes the payments. The Internal Revenue Service (IRS) allows a deduction for mortgage interest paid by a taxpayer who is legally obligated to pay the mortgage. This holds true regardless of whether their name appears on the Form 1098 issued by the lender.

Lenders are required to issue Form 1098 to the person identified as the “payer of record.” This payer of record is the individual whose Social Security number is on the loan application. Consequently, a Form 1098 might be issued to only one co-owner, even if others are also legally responsible for the debt.

Despite the Form 1098 being issued to a single individual, each legally obligated co-owner can deduct their share of the mortgage interest they actually paid. If payments are made from a joint account, each co-owner deducts 50% of the interest, assuming they are both legally obligated. The IRS’s concern is that the total amount of interest deducted by all co-owners does not exceed the total interest reported by the lender on Form 1098.

When One Owner Can Claim More Than Their Share

An individual can deduct more than their proportional share of mortgage interest under specific circumstances. The governing principle for deducting qualified residence interest is that the taxpayer must be both legally obligated to pay the mortgage and must have actually paid the interest. This means if one co-owner makes all the mortgage payments for a jointly owned property, that individual can deduct 100% of the interest paid, provided they are legally obligated on the loan.

For instance, if two unmarried individuals jointly own a home and are both listed on the mortgage, but one individual makes all the mortgage payments, that individual can deduct all the mortgage interest paid. Even if the Form 1098 is issued to the other co-owner, the individual who actually paid the interest can claim the full deduction. This situation requires clear documentation of who made the payments.

Similarly, if someone is a co-signer on a mortgage and is thus legally obligated, and they make payments on behalf of another co-owner, they can deduct the interest they paid. This applies even if the primary borrower is the one who receives the Form 1098. The key is the combination of legal obligation and actual payment.

How to Report Your Mortgage Interest Deduction

To claim the mortgage interest deduction, taxpayers must itemize their deductions on Schedule A (Form 1040). The mortgage lender sends Form 1098, which reports the total mortgage interest paid during the previous year. This form is for accurately reporting the deduction.

If you received a Form 1098, you will use the information provided on it to complete Schedule A. The total mortgage interest paid is entered on the appropriate line of Schedule A. If you paid points to reduce your interest rate, these may also be deductible and are also reported on Schedule A.

In situations where Form 1098 does not accurately reflect who paid the interest, the individual who paid the interest can still deduct their portion. When filing, you should report the amount of interest you actually paid, even if it differs from the amount on the Form 1098 you received. It is advisable to attach a statement to your tax return explaining the discrepancy and detailing how much interest each legally obligated party paid. This clarifies the situation for the IRS and provides supporting documentation for your deduction.