Q: I divorced my husband two years ago. He signed a quitclaim deed giving me the house. There is a loan on the home, but my name was never on the loan.
I have been sending my ex-husband payments for the loan, which he claims as rent. What do I do about taxes and insurance, and how do I know whether or not he is actually paying the lender? The loan should include taxes and insurance, but if I am paying him “rent” will I get a bill for taxes even though they are included in the loan? Will the insurance still cover the home if the loan is not attached to this home anymore?
I am at a total loss over this. Shouldn’t I be able to file tax returns and take the deductions for the payments, or does he get to claim it as rental income?
A: Let’s get this straight. You divorced and you got the house, so the house is now yours. While married, the home was either in both your names or only in your husband’s name, and he obtained a loan secured by the home. Now the home is in your name with a loan that was originally obtained by your husband.
The way you’ve phrased the question is odd: It appears that you own your home now, so you’re not paying rent. You’re giving your former husband money to make the mortgage payments on the home. And, yes, that could put you in a potentially dangerous situation.
From your letter, it sounds as though both of you owned the home originally, and you received outright ownership as part of the divorce settlement. As the sole owner of the home, you should control the property, its finances and any federal income tax benefits you might get from home ownership. More importantly, you should control how and when you make payments relating to your home.
When homeowners divorce, we recommend that the person who receives full ownership of the property also secure their own financing. When your ex-husband used a quitclaim deed to transfer his ownership in the home to you, you would have simultaneously closed on your own loan and enabled him to pay off the mortgage in his name.
The potentially dangerous situation you now find yourself in is that your ex-husband (someone who probably doesn’t like you too much) controls all communication with the lender and likely gets the mortgage statements as well. He also gets tax documents from the lender, crediting his Social Security number with interest payments on the loan. And, you have no way of verifying whether your payments are being used to pay off the property.
How can you fix this? Refinance the property with a new loan in your name. We don’t know whether your current credit history, score or finances will permit you to refinance, but it’s worth calling around to a few lenders to talk through your situation. It’s possible that you’ll get a better interest rate and perhaps be able to save money each month.
Let’s talk taxes: As a homeowner, you can deduct your real estate taxes and interest payments on your loan, but there are limits to these deductions. You can deduct a maximum of $10,000 for state, local and property taxes on your federal income tax return. And you can deduct the interest paid to your lender as well.
However, as a single person you get a standard deduction of $12,550 in 2021, so your deductions for taxes and interest and other items you may have (like medical expenses that exceed 7.5% of your adjusted gross income) would have to exceed $12,550 before you’d be able to itemize on your federal income tax return.
Taxes aside, the biggest issue we see is you can’t call your lender now and talk to them or even get answers to your questions unless you have your ex-husband’s authorization. You can’t check with them to make sure your real estate taxes are getting paid. Worst of all, you can’t even tell if your ex-husband is actually paying the lender what it’s owed each month.
Your ex-husband should not consider what you give him as rent. That money is going to pay the interest on the loan, your property taxes and your homeowner’s insurance payments. It just isn’t a rent payment. There are other ways to handle these payments that would be cleaner and easier: He could have you pay the lender directly or even have those payments debited from your checking account. Either way, he would get out of the way, which would be a good thing. You should move swiftly to get him out of the middle of your financial life.
If you can’t refinance the loan, then try to work out something with your ex-husband to get online access to the mortgage account, set up automatic payments and control your finances from your end without continuing to have your ex-husband involved in your financial affairs.
(Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through their website, bestmoneymoves.com.)