Introduction

Home ownership comes with a variety of tax benefits, from mortgage interest deductions to property tax credits. But what happens when you share ownership of your home with a spouse, partner, or roommate? Joint home ownership can make home buying more affordable, but it also adds complexity to your tax situation. In this article, we’ll explore how joint home ownership affects your taxes and how you can maximize your tax benefits. For personalized mortgage services, call O1ne Mortgage at 213-732-3074.

How Does Joint Home Ownership Affect Your Taxes?

When you co-own a property, each owner is entitled to claim a share of the related tax deductions and credits. The division of these benefits depends on several factors, including how the property is held, who paid the expenses, and your tax filing status.

Paying Expenses from a Joint Account

If you and your co-owner pay expenses from a joint account, the IRS generally requires you to split your deductions for property taxes and mortgage interest equally. This is particularly relevant if you decide to itemize deductions and file separate tax returns. Remember, property tax and other state and local taxes are deductible up to a combined maximum of $10,000. Additionally, interest on the first $750,000 in mortgage debt is deductible, or $375,000 if you’re married and filing separately.

Splitting Mortgage Interest with a Single 1098

Most lenders will report your mortgage interest on a single Form 1098, often listing only one borrower. To split the mortgage interest deduction, the person listed on the 1098 should report their share of the interest on their tax return using the 1098 as backup. The other co-owner(s) can report their share on Schedule A, line 8b, and should attach a note detailing the interest paid along with the name, Social Security number, and address of their co-owner, or a copy of the 1098.

What if You Don’t Own the Property Equally?

In cases where co-owners hold title as tenants in common, ownership shares may be unequal. For example, one partner may own 80% of the property while the other owns 20%. Unless specified otherwise in your tenants-in-common agreement, you can divide your deductions according to your ownership stake and the expenses you’ve paid. If you own 80% of the home and pay 80% of the mortgage, you should deduct 80% of the interest.

Documenting Your Expenses

The IRS is primarily concerned with ensuring that deductible expenses are accurately split. The total amount of interest and property tax deductions should not exceed the amounts reported on your 1098 and property tax bills. To further document your expenses, consider paying your share directly to the lender or tax assessor from your individual accounts. This can help you provide clear evidence to the IRS that you paid your share of the expenses.

How Does Tax Filing Status Factor In?

If you’re married and filing a joint tax return, you don’t need to divide deductions and credits. All income, expenses, deductions, and credits are accounted for on a single tax return. However, married couples filing separately must both choose to itemize or take the standard deduction—no mixing and matching allowed. Additionally, mortgage interest is only deductible for the first $375,000 of debt per spouse.

Keeping Accurate Records

It’s crucial for all co-owners, whether married or unmarried, to keep detailed records of how they’ve divided deductions and credits. This ensures that 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 complexity to your taxes, especially when filing separate returns. If you have questions about how to share deductions and credits, consider working with a tax advisor. They can help you figure out how to split deductions fairly and may offer valuable insights on how to lower your tax bill.

For expert mortgage services, call O1ne Mortgage at 213-732-3074. Our team is here to help you navigate the complexities of home ownership and maximize your financial benefits.