Are mortgage payments your ex paid on your house taxable?

February 08, 2022 by Carolyn Richardson, EA, MBA
House with money background

I did file for five years after a nasty divorce. I got the house in the settlement with my ex finishing the mortgage in return for his 401k. I sold house and now have money to pay what I owe. What do I do? Is the mortgage pmts taxable? 

-Loretto



Hello Loretto,

You asked whether the mortgage payments that your ex paid on the house you received in the divorce are taxable. Your ex made these payments in exchange for keeping his 401k account, rather than having to divide it as part of the settlement.

To answer your question, we’re going to need to make a few assumptions based on the information you’ve provided. We’re assuming that your ex was ordered to pay the mortgage for the last five years under your divorce decree and that your divorce decree was finalized before December 31, 2018. We don’t know whether he was also ordered to pay you alimony or spousal support in addition to making the mortgage payments. Under some circumstances, the mortgage payments can be considered taxable alimony to you, but this will depend on how the home was titled.

If your divorce decree was final before December 31, 2018, then any alimony paid to you is taxable income to you and deductible to your ex. If the divorce or separation instrument stated that your ex must pay expenses (mortgage payments [principal and interest], real estate taxes, and/or insurance) for a home owned by both you and your ex-spouse, some of the payments might be considered alimony. Whether half of such payments are alimony or not depends on if the payments are specified in the divorce instrument and the titling of the underlying property. For example, if you each own a 50% share in the jointly owned home and your ex-spouse is ordered to make the mortgage payments while you occupy the property, 50% of the payment would be designated alimony.

If under the divorce or separation instrument you are occupying a home that belongs to him, then his payments on the property, including mortgage payments [principal and interest], real estate taxes, insurance, and maintenance of the property, are not considered alimony. This is just considered rent-free use of the property by you as the non-owning spouse.

If your divorce decree became final AFTER December 31, 2018, then none of the payments made on the mortgage would be considered alimony to you. This is because the Tax Cuts and Jobs Act of 2017 eliminated the alimony deduction to the paying spouse for decrees finalized after that date, which also means you aren’t required to report them as alimony income.

However, keep in mind that, now that you have sold the house, you will need to report the home sale when you file your tax return for the year of the sale. When you received the property in a tax-free property settlement, it became your property to dispose of, and you are solely responsible for reporting the sale on your return. You will need to report the sale price (likely reported to you on a Form 1099-S), reduced by any selling expenses, and the taxable portion will be that net amount less the original cost of your home, plus any improvements. Since it appears you have owned and occupied the home at least 24 months out of the last 5 years, you can claim a $250,000 exclusion for any resulting gain, assuming you are filing as Single, Head of Household, or Married Filing Separately. If you remarried and you and your new spouse have been occupying the home, you can claim a $500,000 exclusion on any gain from the sale of your home.

We hope you have recovered from your nasty divorce and are now living your best life.

Sincerely,
Carolyn Richardson, EA, MBA

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Carolyn Richardson, EA, MBA
Learning Content Managing Editor

 

Carolyn has been in the tax field since 1984, when she went to work at the IRS as a Revenue Agent. Carolyn taught many classes at the IRS on both tax law changes and new hire training. In 1990, she left the IRS for a position at CCH, where she was a developer on both the service bureau software and on the Prosystevm fx tax preparation software for nearly 17 years. After leaving CCH she worked at several Los Angeles-based CPA firms before starting at TaxAudit as an Audit Representative in 2009. Carolyn became the manager of the Education and Research Department in 2011, developing course materials for the company and overseeing the research requests. Currently, she is the Learning Content Managing Editor. 


 

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