The IRS allows taxpayers to deduct home mortgage interest in the form of itemized deductions, which allows you to deduct your actual expenses rather than a set sum. When a married couple files separately and in case one spouse itemizes, another spouse also must itemize. If you and your spouse are filing separately and intend to itemize, you can split the mortgage interest expenses however you like as long as the combined deduction does not exceed the real interest cost.
Obtain two copies — one for you and your spouse — of Form 1040 and Schedule A in the IRS website.
Divide the mortgage interest cost between you and your spouse. The objective of itemizing is to reduce your adjusted gross income (AGI) by as far as possible. Typically, the spouse with the highest income should claim the largest portion of the mortgage interest. As an example, if your AGI is $200,000 and your spouse has an AGI of $100,000, you must deduct all, or at least a majority, of the mortgage interest to reduce your AGI.
Complete the top portion of Form 1040 for the two spouses, and check the box labeled “Married Filing Separately.” Enter the opposing spouse’s Social Security number in the field provided.
Complete the “Income” and “Adjusted Gross Income” parts of each form.
Begin completing the “Taxes and Credits” section, but stop once you arrive at the line labeled “Itemized Deductions or Your Standard Deduction,” that is Line 40, as of 2012.
Allocate each partner’s expenses, and enter the amounts on Schedule A. Include any pertinent medical and dental expenses, taxes, gifts to charity, casualty and theft reduction, and other miscellaneous expenses in your itemized deductions. When you reach the line labeled “Home Mortgage Interest,” enter each partner’s portion of their mortgage interest in the corresponding field.
Add up each partner’s total itemized deductions on Schedule A. Transfer each amount to the line labeled “Itemized Deductions or Your Standard Deduction” about the proper Form 1040.
Complete Form 1040 for each spouse, and determine whether you’ll owe taxes or will receive a refund. If one spouse will be given a refund and another owes taxes, then reevaluate your mortgage interest deduction. Reallocate the mortgage interest cost until both spouses owe the smallest amount of taxes as possible.
Sign and date your return, and then mail the forms to the IRS address listed in the 1040 instructions.