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Home ownership has its tax benefits. The IRS offers certain tax breaks to homeowners who pay mortgage interest and property taxes, upgrade their homes with energy-efficient improvements and more.
But what if your name isn't the only name on the title? Buying a home with your spouse, partner or roommate can bring home ownership within financial reach. And sharing ownership of your home doesn't mean you have to forgo home-related tax deductions and credits. Here's how you can share the tax benefits of owning a home with co-owners.
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How Does Joint Home Ownership Affect Your Taxes?
Co-owners of a property are each entitled to claim a share of related tax deductions and credits on their tax returns. How those deductions and credits are divided may depend on how the property is held, who paid the expenses and what your tax filing is.
Paying Expenses From a Joint Account
If you co-own your home with a spouse or partner and pay expenses from a joint account, the IRS says you should split your deductions for property taxes and mortgage interest equally—assuming you decide to itemize deductions and you file separate tax returns.
- Property tax and other state and local taxes are deductible up to a combined maximum of $10,000.
- Interest on the first $750,000 in mortgage debt ($375,000 if you're married filing separately) is deductible. This limit applies per taxpayer if you and your co-owner are not married.
Splitting Mortgage Interest With a Single 1098
If you carry a single mortgage on your home, chances are that your lender will report your mortgage interest on only one Form 1098 at the end of the year. Moreover, many lenders will list only one borrower on the form.
You can split the mortgage interest deduction for interest reported on a single form by having the person listed on the 1098 report their share of the interest on their tax return using the 1098 as backup. The other co-owner(s) can report their share of the mortgage interest on Schedule A, line 8b. The second co-owner should also attach a note detailing the interest paid as well as the name, Social Security number and address of their co-owner, and/or a copy of the 1098.
What if You Don't Own the Property Equally?
If you co-own your home as joint tenants or are married in a community property state, each partner owns an equal share. Co-owners who hold title as tenants in common may own unequal shares in a home: One partner may own 80% of the property to the other partner's 20%, for example. Unless your tenants-in-common agreement states otherwise, you may divide your deductions according to your stake in the property and how much of the expense you've paid. If you own 80% of your home and pay 80% of the mortgage, you should deduct 80% of the interest.
Generally speaking, the IRS is less concerned about how you split these deductions than they are about making sure you've split deductible expenses accurately. The total amount of interest you and your co-owner(s) deduct should not exceed the total amount reported on your 1098. Similarly, your property tax deductions should not exceed the amount of property tax paid.
It may be helpful for all parties to pay their share of deduction-related expenses from their individual accounts directly to the lender or tax assessor, rather than reimbursing their co-owner. That way, you can further document to the IRS that you paid your share of the expenses in question.
Also track your individual expenses if you make home improvements that qualify for residential energy tax credits. You may each file Form 5695 to report your individual expenses and calculate your credit.
How Does Tax Filing Status Factor In?
If you're married and filing a joint tax return, you don't have to divide deductions and credits: Your income, expenses, deductions and credits are all accounted for on a single tax return.
Married couples filing separately may want to consider:
- They must both choose to itemize or take the standard deduction. No mixing and matching allowed.
- Mortgage interest is only deductible for the first $375,000 of debt per spouse.
- Mortgage interest is deductible for the person who paid it. If you paid the whole mortgage from an individual account, you get 100% of the deduction. If the mortgage is paid from a joint account, each spouse typically deducts 50%.
It's a good idea for all co-owners—married or unmarried—to keep records that show how they've divided deductions or credits, so each person can report their share accurately on their tax return and explain their methodology to the IRS if needed.
The Bottom Line
Splitting deductions and credits with a co-owner can add a layer of complexity to your taxes, particularly when you're filing separate returns. If you have questions about how you should share deductions and credits, consider working with a tax advisor. They can help you figure out how to split deductions fairly—and may have valuable insight on how to lower your tax bill in the process.