If the house is jointly owned after divorce and each former spouse (A and B) makes half of the mortgage interest and property tax payments, but only one of them (A) lives in the house, can they both deduct the mortgage interest and property tax that they pay on their own tax returns? The rule with mortgage interest is that you can only deduct mortgage interest on your primary or second home, but the home is not really the primary or second home of the former spouse who no longer lives there (B), so I'm confused with whether the payments are deductible. Publication 504 suggests that it is, because when B makes all the payments, half of the mortgage interest is deductible on their return, and the the other half is alimony.
And what about the section 121 exclusion? The former spouse B who moves out may lose out on the exclusion if the house is sold after more than 3 years. However, IRC 121(d)(3)(B) suggests that the former spouse who moves out (B) but still jointly owns the home may get the section 121 exclusion anyway because A lives there. Is my reading right?