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This screen discusses the tax treatment of a payment of mortgage interest by the spouse living outside the home, when the home is jointly owned.

An example will illustrate this case. Say John and Mary own the home jointly, even after the divorce. John has moved out, and he pays the mortage.

John can probably deduct half the interest as mortgage interest if he itemizes his deductions (claiming that the marital home is his "second home" for tax purposes).

He can deduct the entire other half of the payment (principal and interest) as alimony.

Mary must include the alimony and pay taxes on it. She may deduct the other half of the interest if she itemizes her deductions.

For the spouse who lives outside the home, this approach works out just fine. The alimony deduction is, if anything, worth more than the mortgage interest deduction.

For the spouse who lives in the home, this might not work out so well. The alimony payment counts as taxable income. But, due to various phase-outs and limitations, the mortgage interest deduction might not always cancel out the alimony income.

You can use the calculator to try both scenarios, and make your decision with a clear understanding of the tax effects.

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