Unmarried, own a house together...who claims deductions?


V

vfbundy

I just got my Form 1098, which is a mortgage interest
statement. Although both our names appear on it, the
Taxpayer's Federal ID # is just lists MY Social Security
number.

Does this mean *I*, and only *I* can claim this interest as
a deduction on my taxes, or am I supposed to split it
between me and my girlfriend?

Actually, the same question applies to claiming real estate
taxes. Both our names are on the house, so does this mean I
have to split the taxes between us, or can I just claim them
alone?

The obvious advantage is one person claiming everything.
Using a simple example:

ME
$10,000 mortgage deduction
$3,000 real estate tax deduction
=$13,000 total

HER
=$5,000 standard deduction

TOTAL
$18,000 in deductions

----
Splitting all the interest and taxes between us:

ME
$5,000 mortgage deduction
$1,500 real estate tax deduction
=$6,500 total

HER
$5,000 mortgage deduction
$1,500 real estate tax deduction
=$6,500 total

TOTAL
$13,000 in deductions

Obviously, the first scenario is better...but is it legal?

So...basically, two questions:

A) Do we have to split the mortgage interest deduction?
(Even though only MY Tax ID # appears on the Form 1098.)

B) Do we have to split the real estate tax deductions, or
can one of us claim it all? (Even though we both own the
house together.)

Thanks in advance!!
 
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L

L K Williams

I just got my Form 1098, which is a mortgage interest
statement. Although both our names appear on it, the
Taxpayer's Federal ID # is just lists MY Social Security
number.

Does this mean *I*, and only *I* can claim this interest as
a deduction on my taxes, or am I supposed to split it
between me and my girlfriend?

Actually, the same question applies to claiming real estate
taxes. Both our names are on the house, so does this mean I
have to split the taxes between us, or can I just claim them
alone?

The obvious advantage is one person claiming everything.
Using a simple example:

ME
$10,000 mortgage deduction
$3,000 real estate tax deduction
=$13,000 total

HER
=$5,000 standard deduction

TOTAL
$18,000 in deductions

----
Splitting all the interest and taxes between us:

ME
$5,000 mortgage deduction
$1,500 real estate tax deduction
=$6,500 total

HER
$5,000 mortgage deduction
$1,500 real estate tax deduction
=$6,500 total

TOTAL
$13,000 in deductions

Obviously, the first scenario is better...but is it legal?

So...basically, two questions:

A) Do we have to split the mortgage interest deduction?
(Even though only MY Tax ID # appears on the Form 1098.)

B) Do we have to split the real estate tax deductions, or
can one of us claim it all? (Even though we both own the
house together.)
The second scenario may seem obvious to you but it doesn't
to me. You must consider the whole return, not just one
part. Any number of other factors could change the
conclusion. For example, you could have losses, she could
have gains, maybe her salary is higher than yours, maybe one
of you can claim dependent children, one of you could be
eligible for education deductions or credits, etc., etc.

However, only the person who pays the interest and taxes in
entitled to the deductions. To claim these deductions, you
must meet two tests: you must actually own the property and
be liable for the payments, and you must actually make the
payments. You say you are both on title so I assume you are
both liable for the mortgage. But, only the one who
actually made the payments can take the deduction -- if you
paid it all, you take the deduction; if you split the
payments, you split the deduction.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans
 
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R

rick++

Use the line 11 of 1040A for mortgage interest payments not
on a 1098 in one's SSN.

Unrelated people investing together is what is known as a
defacto business partnership. Costs and profits are treated
in one of two ways if you havent written a partnership
contract: (1) equal shares per partner or (2) pro-rated per
capital contribution. Each state may have variations on
business partnership law.

Partnership contracts are recommended (1) for financial
terms different from a defacto arrangement and (2) for when
things go wrong, e.g. breakup, job-loss, IRS audits, or
other event significantly changing the arrangement. This
reduces much grief later on.
 
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B

Brew1

here's a novel suggestion: deduct the portion of the taxes
and interest that you paid.
 
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T

thetaxdon

I would have sepatate checking accounts and make the house
payments from only my account. Your girl friend can make
contributions to the household in other ways, such as food.
Keep everything seperate and claim the interest and taxes
deductions yourself.

Don in Colorado
 
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D

Dan Lanciani

However, only the person who pays the interest and taxes in
entitled to the deductions. To claim these deductions, you
must meet two tests: you must actually own the property and
be liable for the payments, and you must actually make the
payments.
Within those constraints, are you free to choose who pays
(and thus deducts) arbitrarily or must you allocate based
on some ownership ratio?
You say you are both on title so I assume you are
both liable for the mortgage. But, only the one who
actually made the payments can take the deduction -- if you
paid it all, you take the deduction; if you split the
payments, you split the deduction.
What documentation is required to establish who actually
made the payments if such a deduction is to be sustained
on audit?

Dan Lanciani
[email protected]*com
 
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L

L K Williams

[email protected]*com (Dan Lanciani) said:
(e-mail address removed) (L K Williams) writes:
Within those constraints, are you free to choose who pays
(and thus deducts) arbitrarily or must you allocate based
on some ownership ratio?
What documentation is required to establish who actually
made the payments if such a deduction is to be sustained
on audit?
Well, you don't actually "choose" who takes the deduction.
As long as you are both liable on the mortgage, the
deduction can be claimed by the person who actually makes
payment. IRS doesn't care why the payments are
disproportinate to ownership.

You prove your payments by copies of checks or charges to
your bank account.

There is a way go make an after the fact choice, as it
happens. If you comingle your funds in a joint account and
make payment from that account, you can both say you made
payments.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans
 
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V

vfbundy

thetaxdon said:
I would have sepatate checking accounts and make the house
payments from only my account. Your girl friend can make
contributions to the household in other ways, such as food.
Keep everything seperate and claim the interest and taxes
deductions yourself.
I guess the mistake we made is that we have EVERY bank account
....savings, checking, CDs...in both our names. Even though *I*
actually pay the bills (she doesn't even know the password to
access the accounts online), her name is on every account, as
my name is on "her" savings and checking accounts. So, I
guess I'm forced to split the deductions.

My concern is that, on our CDs, for example, it's only MY
social security # that appears, and that's what's sent to the
IRS from the bank. I assume the same is true with our mortgage,
that they send only my SS # to the IRS. I'm just wondering if
there will be a lot of red flags on her return for claiming
interest that the IRS has no record of her paying. I suppose
I could explain it all in an audit, but it's something I'd like
to avoid.
 
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L

L K Williams

thetaxdon wrote:
I guess the mistake we made is that we have EVERY bank account
...savings, checking, CDs...in both our names. Even though *I*
actually pay the bills (she doesn't even know the password to
access the accounts online), her name is on every account, as
my name is on "her" savings and checking accounts. So, I
guess I'm forced to split the deductions.
No, you may not be forced to split the deduction. If you
comingle your funds in the account(s) used to make the
payments, then you are jointly making the payments.
However, if you each maintain separate accounts, even though
both names are on the account, it is the person who deposits
money into the account used that is entitled to the
deductins.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans
 
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P

Phil Marti

I would have sepatate checking accounts and make the house
I guess the mistake we made is that we have EVERY bank account
...savings, checking, CDs...in both our names. Even though *I*
actually pay the bills (she doesn't even know the password to
access the accounts online), her name is on every account, as
my name is on "her" savings and checking accounts. So, I
guess I'm forced to split the deductions.
The designations on the accounts aren't as important as
whose money it is.
My concern is that, on our CDs, for example, it's only MY
social security # that appears, and that's what's sent to the
IRS from the bank.
You can change this with a W-9 sent to the bank.
I assume the same is true with our mortgage,
that they send only my SS # to the IRS.
See the Schedule A instructions for reporting mortgage
interest on a 1098 in other than your SSN.
I'm just wondering if
there will be a lot of red flags on her return for claiming
interest that the IRS has no record of her paying.
It's very unusual for IRS to get upset about someone
reporting income they don't know about.
 
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D

Dan Lanciani

I guess the mistake we made is that we have EVERY bank account
...savings, checking, CDs...in both our names. Even though *I*
actually pay the bills (she doesn't even know the password to
access the accounts online), her name is on every account, as
my name is on "her" savings and checking accounts. So, I
guess I'm forced to split the deductions.
Funny, I interpreted Mr. Williams' response to mean that you
had more flexibility if you paid from a joint account since
he referred to being able to make the choice after the fact.
Now I'm more confused. :( If you have to split in such a
case and if the allocation is determined by something
outside of your control then you would not seem to have such
a choice. On the other hand, if the allocation is indeed
arbitrary then why can't you allocate 1%/99% or even
0%/100%?

On the third hand, if the allocation must be made according
to your state's default partnership rules (e.g., equal
shares or pro-rated by capital contribution) and you do not
actually make payments in the amounts of your respective
liabilities is the deduction lost to the extent that one
person overpays and the other underpays his/her obligation?

Dan Lanciani
[email protected]*com
 
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