Can wife still claim mortgage interest after husband dies ( husband on mortgage, but both on deed)

We just refinanced our home and only I am on the mortgage, but both wife and I are on the deed. I know there are some advantages of doing this, but one thing I thought of is that if I should die, and if my wife continues to make payments, can she still deduct mortgage interest on her tax returns?

Reply to
Mike rock
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Before concerning yourself about interest tax deductions you have to focus on what happens when a mortgagee dies. This is subject to 3 things: 1. What are the terms of the mortgage? 2. What is the state law?

  1. Was there a will that specified what should happen to the mortgage?

Assuming that there is either no will or nothing specified about how the debt she be handled in a will, then the mortgage terms and state law dictate what happens to the loan. The debt becomes part of the decedent's estate. Typically, the bank has the right to call the loan unless there is something in the mortgage terms that allows the loan to be assumable by the survivor or state law allows it to be assumable. If not, the bank can call the loan and expect the Estate of the Decedent to pay it off. What usually happens is that the bank allows the surviving spouse to take over the loan. You need to find out what the loan actually says about it being assumable by a surviving owner. Or if it says nothing, you need to find out what your state law says about it. You would also need to see what your state law says about whether a bank can take the surviving spouse's property that is being used as a main home. Many states don't allow it.

Getting back to the original question as to whether a surviving spouse who owns the home can deduct mortgage interest payments made on a loan that the surviving spouse had not signed: To be able to deduct interest on a mortgage, the person making the payment must show that 1. The loan is secured by the home. 2. If the loan is defaulted, the property can satisfy the debt. 3. The person has an ownership interest in the home.

  1. The loan was recorded with the proper authorities as specified by state law (typically, the county in which the home is situated).

Assuming the loan had been properly recorded, the surviving spouse would meet the 3 other requirements. The home is still security for the debt. Failure to make the payments would put the loan in default and the survivor could lose her property. As such, the interest payments would be deductible. Please note that this is true even though the debt belongs to the Estate of The Decedent. In addition, as the owner, any property tax paid by the surviving spouse would also be tax deductible.

Reply to
Alan

When spouses attempt creative financing with respect to tax and other matters, another thing that should be taken into consideration is the possibility of divorce. The divorce rate nowadays is close to 50%. It would seem that a future event that could happen with such a high probability most certainly should be considered when doing financial planning. So a related question is, with one spouse on the mortgage and both spouses on the deed, what would be the situation after a divorce?

Reply to
Don

What's in the divorce decree?

Reply to
Alan

Are you saying that the decree would specify who retains the property and who pays the mortgage after the divorce? I presume that it would depend on what the court decides. My point is that the spouses in their original financial planning should at least envision the possibility of a future divorce before deciding upon how ownership of the property and responsibility for the mortgage debt is assigned when buying the house.

Reply to
Donald Zimmerman

Yes, it could.

I presume that it would

Reply to
Alan

A financial plan for a married couple that depends on their marriage lasting permanently can be expected to be useless 50% of the time.

Reply to
Don

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