Who Deducts the Mortgage Interest and Property Taxes the Year You Separate in New Jersey?

If you're separated but not divorced on December 31, the IRS treats you as married for the whole year. File separate federal returns, and each of you generally deducts only the mortgage interest and property taxes you paid yourself on a home you own as tenants by the entirety. On your New Jersey return, spouses who file separately but keep the same home each count half of the property taxes.

I'm Dennis Mark Interdonato, a REALTOR® and Master CDRE® with The Dennis Mark Group at Keller Williams Realty Ocean Living. The year is almost over, and the bills on the house keep coming whether the divorce is done or not, so this is a good month to look at how the marital home shows up on your tax returns.

First, where I stand. I sell homes. I'm not an accountant, a tax preparer or a mortgage lender, and I'm not licensed to give tax, accounting or mortgage advice. What follows is my own research, read from the IRS and the New Jersey Division of Taxation on November 5, 2026. I could have something wrong, and these rules change, so treat this as a list of questions to bring to your tax professional, not as the answer.

Are you married or unmarried for taxes this year?

It depends on one date, and it isn't the day one of you moved out. IRS Publication 504 says you're married for the whole year if you're separated but haven't obtained a final decree of divorce or separate maintenance by the last day of your tax year. It adds that an interlocutory decree isn't a final decree.

Flip it around: with a final decree by the last day of the year, under your state's law, you're unmarried for the whole year. A decree entered on December 30 and one entered on January 2 can put you in two different filing positions.

Should you file jointly or separately?

If you're still married on December 31, the choice is a joint return or married filing separately. Before you sign a joint return, know that the IRS can hold each of you responsible for all of the tax, interest and penalties on it. Publication 504 says that stays true after the divorce, even if your decree says your former spouse will pay.

Separate returns have their own cost. The IRS says that in almost all instances, separate returns mean more combined federal tax than a joint return. Which way to go is a call for you, your tax professional and your attorney.

If you file separately, who deducts the mortgage interest?

Publication 504 has a table for this. For mortgage interest on a qualified home held as tenants by the entirety, each spouse filing separately deducts the mortgage interest they alone paid. Your deed says how the two of you hold title, so pull it out and look.

• Both of you itemize, or neither does. If you file separately and one of you itemizes, the other can't take the standard deduction and should itemize too.
• The loan limit is cut in half. Publication 936 lets you deduct interest on the first $750,000 of home mortgage debt, or $375,000 if you're married filing separately. For debt taken on before December 16, 2017, the limits are $1 million, or $500,000 filing separately.

The words "you alone paid" are where the paper trail matters. If the mortgage comes out of a joint account, ask your tax professional before you file, and keep the statements that show which account each payment came from.

Who deducts the property taxes?

On the federal return, the same IRS table applies to property taxes: for property held as tenants by the entirety, each spouse filing separately deducts the property tax they alone paid.

There's also a cap. IRS Publication 530, written for 2025 returns, limits the deduction for state and local income, sales and property taxes to $40,000, or $20,000 filing separately, with a smaller limit once modified adjusted gross income passes $500,000 ($250,000 filing separately).

The IRS also counts real estate taxes paid at settlement or closing, so if the house sells this year, the closing paperwork is part of your tax record.

What does New Jersey allow on the state return?

New Jersey has its own property tax deduction or credit on the NJ-1040. The Division of Taxation says you can deduct your property taxes paid or $15,000, whichever is less, or take a refundable credit of $50. The NJ-1040 instructions walk you through which one gives you the bigger benefit.

Here's the part that matters when you're separated. The Division says that if you and your spouse file separate returns but maintain the same principal residence, only one-half of the property taxes due and paid can be used for the deduction or credit.

One of you moved out partway through the year? The Division says anyone who lived in more than one New Jersey residence during the year uses Worksheet G in the NJ-1040 instructions to add it up. For a renter, 18% of the rent paid during the year counts as property taxes paid.

What if your agreement says one of you pays the whole mortgage?

The date on your agreement matters. Publication 936 says that if a qualified pre-2019 divorce or separation agreement requires you to pay mortgage interest on a home owned by both of you, those payments may count as alimony, and it sends you to Publication 504 for the details. For an agreement signed after 2018, Publication 504 says alimony isn't deductible by the person paying it or counted as income by the person receiving it.

Frequently Asked Questions

One of us moved out this spring. How does New Jersey count the property taxes?

The Division of Taxation says spouses who file separately but keep the same principal residence each use half of the property taxes. If you lived in more than one New Jersey residence during the year, Worksheet G in the NJ-1040 instructions adds it up. Have your tax professional run it with you.

Does the date of the final decree really change our filing status?

Yes. With a final decree by the last day of the tax year, Publication 504 treats you as unmarried for the whole year. Without one, you're married for the whole year, and an interlocutory decree doesn't count.

One more time, because it matters: this is my research, not tax, accounting or mortgage advice. I'm a REALTOR®, not a CPA or a lender, and I could be wrong or out of date by the time you read this, so let your tax professional run your numbers. If the bigger question is whether to keep the house or sell it, start with a neutral home value that both of you, and both attorneys, can see.

This is general information, not legal, tax, accounting or lending advice. The IRS figures come from the 2025 editions of Publications 504, 530 and 936 (for 2025 returns), the editions posted on IRS.gov when I read them on November 5, 2026. The IRS updates them every year.

About the author

Dennis Mark Interdonato is a REALTOR® and Master CDRE® who leads The Dennis Mark Group at Keller Williams Realty Ocean Living in Point Pleasant, NJ, helping buyers and sellers throughout New Jersey make their next move, with Monmouth and Ocean County as home base. Read more about Dennis Mark.

Keep reading

• Read the divorce home sale guide
• Is a transfer of the house between spouses subject to the realty transfer fee?
• How the capital gains exclusion works in a New Jersey divorce
• Who pays the mortgage, repairs and costs while the house is listed
• Have a question this didn't answer? Send it to Dennis Mark.