Divorce: itemizing and TLH

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EdLaFave
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Joined: Fri Dec 26, 2014 2:31 am

Divorce: itemizing and TLH

Post by EdLaFave » Tue Aug 06, 2019 2:42 pm

A couple questions:

1. Suppose a couple jointly owned a home, divorced in the middle of the year, and immediately sold that home. For that tax year, can one person make use of the mortgage to itemize while the other person uses the standard deduction? Do the individuals get to decide who itemizes and who doesn’t?

2. Suppose over the years of the marriage, one person did some TLHing in their taxable account (other spouse’s name was intentionally never on the account), can that spouse “keep” the rollover losses, can that spouse give the rollover losses to the other person, or do the rollover losses have to be split?

Uniballer
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Re: Divorce: itemizing and TLH

Post by Uniballer » Tue Aug 06, 2019 3:40 pm

The rules say that if you are Married Filing Separately then you must either both take the standard deduction or both itemize.

IRS link "Other Deduction Questions"

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CAsage
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Re: Divorce: itemizing and TLH

Post by CAsage » Tue Aug 06, 2019 4:21 pm

Of course, if they aren't married on 31 December, they are Single. Or HOH. Married Filing Separately only applies if married... on 31 Dec. So, what date did the divorce finalize? If they are single... I think they could decide on their own, not every joint asset between unmarried but still together couples gets split evenly (even deductions...).
Last edited by CAsage on Tue Aug 06, 2019 4:35 pm, edited 1 time in total.
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EdNorton
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Re: Divorce: itemizing and TLH

Post by EdNorton » Tue Aug 06, 2019 4:27 pm

The tax loss carryforward is negotiable, if the other spouse has a lawyer with any brains. It is just another marital asset.
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Rudedog
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Re: Divorce: itemizing and TLH

Post by Rudedog » Tue Aug 06, 2019 5:05 pm

The spouse who owned the account with the tax loss carryforward would keep those losses. That should be stated in the divorce settlement agreement. Regarding the mortgage interest deduction, the IRS would probably trace the deduction back to the person or persons who made the payments, and the person or persons who owned the house at the point it was sold. So, if it was sold as jointly owned, the IRS would probably split the deduction. But, if the standard deduction was more, the taxpayers would use the standard deduction. I doubt the IRS would allow one taxpayer to claim the interest deduction if both were on the mortgage, both contributed to the payments, and the home was owned by both when sold. Whose name would the lender issue the 1098 form to ?
Last edited by Rudedog on Tue Aug 06, 2019 5:13 pm, edited 1 time in total.

megabad
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Re: Divorce: itemizing and TLH

Post by megabad » Tue Aug 06, 2019 5:12 pm

EdLaFave wrote:
Tue Aug 06, 2019 2:42 pm
A couple questions:

1. Suppose a couple jointly owned a home, divorced in the middle of the year, and immediately sold that home. For that tax year, can one person make use of the mortgage to itemize while the other person uses the standard deduction? Do the individuals get to decide who itemizes and who doesn’t?
Once you are filing single or HOH (as you would be), can't see what spouse would have to do with the decision to claim standard deduction or itemize. Whether you can deduct mortgage interest would depend on the property classification of the house and how it was treated (martial vs separate) I would think.

2. Suppose over the years of the marriage, one person did some TLHing in their taxable account (other spouse’s name was intentionally never on the account), can that spouse “keep” the rollover losses, can that spouse give the rollover losses to the other person, or do the rollover losses have to be split?
In my experience with several friends, this is clearly laid out in the divorce agreement. It will depend on whether these assets are separate or marital property (by law, not by what one spouse thinks). My understanding is that you don't really get to choose and it is marital property classification that matters but I am not a lawyer (obviously any divorcing spouse should have one and consult said person).

THY4373
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Re: Divorce: itemizing and TLH

Post by THY4373 » Tue Aug 06, 2019 5:15 pm

My ex and I divorced on good terms. She owns a place and I by choice, not circumstances, choose to rent. Part of our divorce agreement is that we pay our son's direct costs (school tuition, school supplies, clothes, etc.) based our share of our combined income the previous year (e.g., if I make 55% of our combined income and her 45% we pay that percent of my son's direct costs each). Since we both know what the other makes we work on our taxes together. Right now she can itemize and usually itemizes just above the HoH standard deduction of $18k. We make sure I have my son slightly more than 50% of the time and I take the HoH deduction and split the benefit that I get from that with her (I write her a check for half my tax savings going from single to HoH). If we were married we'd get the $24k standard deduction. Since we are divorced we get a net of $36k-ish deduction combined. Works for us.

c0nj0b
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Re: Divorce: itemizing and TLH

Post by c0nj0b » Tue Aug 06, 2019 6:10 pm

There seems to be confusion to filing status with regards to married filed separately. You can only file married separately, jointly, or in some cases head of household if you are still married on December 31. If you are still married as of Dec 31, and both parties file married filing separately, if one party itemizes, the other party must itemize. If there are dependents involved, one party can file married filing separately and other can file Head of Household if that party had the dependent living for more than half the year and the spouses did not live together the last half of the year. Then, each party can itemize, or claim the standard deduction independently.

However, none of this applies. If you are divorced as of December 31, you are either filing Single or Head of Household (unless you remarry of course).

Concur with the above that your divorce lawyer should have spelled out who can claim the deduction while you are married. If not, they did you a disservice. However, in that case, if the interest/taxes was paid from a marital asset (like a joint account or an account that had marital money in it), then the deductions while married are likely to be split 50/50. However, if one party paid the taxes and interest from a separate, non-marital fund (such as a bank account that did not have marital funds in it and only had money post separation), then the person paying the interest/taxes is entitled to deduct the interest/taxes.
See IRS Revenue Ruling 71-268 Mortgage Interest Issues: https://www.irs.gov/pub/irs-wd/201451027.pdf

Also, with respect to after the separation agreement/divorce, one can also only claim a deduction if they are entitled too, meaning they have a ownership interest in it. If a spouse is awarded the house as part of a divorce, only that spouse can claim a deduction from that point forward.

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