Splitting Tax Deductions

A distinction is made between assets that are considered legally owned by both spouses as their marital community, referred to as “community property,” and those that are legally considered to be owned only by one spouse. These are referred to as “separate property.” Rules for deductions and reporting income are classified by whether the underlying asset is community property or separate property in the nine community property states, and whether the income is community income or separate income. For example, a deduction for investment expenses would be a community deduction if the investment were community property. The deduction would be a separate deduction for the spouse who earned the income if the investment were that spouse’s separate asset. The deduction would be allocated in the same proportion if an investment were a mix of community and separate property.

Standard Deduction vs. Itemized Deductions

Married couples filing separately must both itemize, or they must both take the standard deduction. You might want to take whichever option is more beneficial across both separate returns.

The Deduction for Traditional IRAs

Individual retirement accounts (IRAs) are considered to be a spouse’s separate property under federal tax laws. Each spouse will determine their eligibility for a traditional IRA deduction based on earned income calculated without regard to the community property rules. The same goes for determining eligibility for a Roth IRA.

Mortgage Interest and Property Tax Deductions

Tax deductions relating to real estate are allocated based on whether the property is community property or separate property. The deduction for mortgage interest and property taxes would be split evenly if the home were owned as community property. The spouse who is the owner of the property would take the deductions if the home were owned as separate property.

Personal Itemized Deductions

Personal expenses, such as those for medical expenses, gifts to charity, and college tuition, would be deductible for the spouse who actually paid the expense if they’re paid from that spouse’s separately maintained funds. Again, many of these are itemized deductions, so one spouse couldn’t claim them if the other were claiming the standard deduction on a separate return. Spouses would evenly divide the deduction between themselves if the expense were paid out of community funds, such as a jointly owned bank account.

Alimony Deductions

If you divorced in 2019 or later, alimony payments won’t affect your taxes. If you were divorced in 2018 or earlier, the alimony payments you make may be tax-deductible, and the alimony payments you receive must generally be declared as income.