It depends on whether the parties hold the asset in joint title, or whether only one party is the owner.
Joint title
If the parties hold the property in joint title, half of the mortgage payers’ payment counts as alimony income to the other party.
The other party then also gets a mortgage interest deduction of half of the mortgage interest paid. (The first party gets the other half, only.)
There is an option in the software to automatically make this happen.
On the real estate “more info” screen, open the section on the first or second mortgage. At the bottom of that section there will be a link to click for more information about the mortgage. Click that link. On the screen that appears, there will be an option to deduct mortgage interest per joint title.
One party owner.
Let’s say Party A is the owner.
Let’s say, further, that Party A pays the mortgage but does not live in the residence, and the parties file separate returns.
In this case, Party A’s ability to deduct mortgage interest depends on whether there is a written separation agreement that gives Party B the right to live in the home.
If there is such a written separation agreement, then Party A can deduct the mortgage interest that they pay. This is because they are treated for tax purposes as having the home as their principal residence.
If there is no such written separation agreement, then Party A could try to claim the property as a second home.
It would have to be the case that they have no other second home.
Party A would have to live in the home for more than 14 days (assuming the home is not rented out).
Otherwise, it would not be permitted to deduct the mortgage interest, even though Party A is the one paying it. This is because the interest is not on their principal residence or a second home.
In Family Law Software, if the checkbox shown above is not checked, then the software gives the mortgage interest deduction to the payer without regard to ownership.
If a party has moved out, and is paying the mortgage, and there is no separation agreement, you may need to override the mortgage interest deduction on the View/Edit Taxes screen, to set the party’s mortgage interest deduction to zero.
If the parties are filing jointly, then all of the interest may be deducted on the joint return, as long as one of the parties lives in the residence, even if it is the other party that pays the mortgage.