Unmarried Couple Home Purchase - who claims the home on taxes?

[hm13hm13]

My fiance and I purchased a home together in May 2015. Obviously, we are not married so we file taxes separately. I'm seeking advice on how this situation should be handled on taxes? I assume only one person can claim it. Not sure if the info is pertinent, but I funded the $100K downpayment. We split the monthly mortgage bill as a ratio of our incomes. If it helps to have the breakdown of exact costs, etc. I can provide that. Usually I make more money than my future husband, but maternity leave (5 months off from work largely unpaid) made our yearly income likely pretty close. Also not sure if it matters, but our previous home was converted into a rental property. I was the sole owner listed on that home even though we lived in it together from the get go. Back to the question... who claims the new home purchase? The higher earner?

[zephyr911]

If you're both on the title, I'm pretty sure you can divide the expenses and each claim a portion, but that'd reduce the effective deduction for it since only the portion of itemized deductions *above* the standard deduction actually reduces your tax bill. Why not run separate analyses for each possible scenario and figure out which one saves you two the most in total?

[redcedar]

A good question. Here is my understanding which may be opinion so I would recommend seeking advice from a professional (hopefully family or friend that will give you free advice).

Who is on the mortgage? This will drive who receives the 1098 mortgage interest form. From there determine who paid how much of the mortgage payments - 50/50, 60/40, etc. Then use Sch A to enter in the amounts. If the 1098 is in your name, you can claim the interest deduction easily albeit less than the full amount on the 1098. Then your fiance, has to also use Sch A to claim his/her portion. Both of you will need to keep clear documentation of the split and ensure the sum is not greater than the 1098.

Now if you have a joint account or other reasons why a clear % mine vs % theirs is difficult to derive, you will have to estimate possibly using something like % of total income. You could get crafty on the %s if one of you would gain more of a tax break but that could always be challenged later by IRS.

Here is as close to official that I could find:

IRS Publication 936 (https://www.irs.gov/pub/irs-pdf/p936.pdf) says:

"If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. Show how much of the interest each of you paid, and give the name and address of the person who received the form. Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form1040), line 13. Similarly, if you are the payer of record on a mortgage on which there are other borrowers entitled to a deduction for the interest shown on the Form 1098 you received, deduct only your share of the interest on Schedule A (Form 1040), line 10. Let each of the other borrowers know what his or her share is."

Good luck.

[zephyr911]

So essentially, you can choose whatever allocation you think is fair, as long as the person NOT on the 1098 includes an explanation with their return. The other will apparently receive no added scrutiny for claiming less than the 1098 amount.

You're Mustachian, so we assume you can do math and not claim more than 100% of the total between you. ;)

[MustacheAndaHalf]

Do you have documentation showing how your ownership is divided?  If it comes to an audit, the IRS would want to see documentation.  Once you know the percentage split, it's a matter of multiplying the amount shown in form 1098 by each person's percentage.

I suffered lots of frustration trying to get tax software to understand "nominee mortgage interest".  I'm not a tax expert, but I find its easier to input just my amount for the 1098, and then make a note about nominee on the proper line of schedule A.  Ultimately in my opinion IRS cares that the two numbers add up between the two of you, and that you have documentation showing how you did so.

[seattlecyclone]

You need to claim the mortgage interest deduction proportional to how much each of you actually paid during the year, as Redcedar's quote from Publication 936 cites. There's no rule requiring you to each pay equal shares of the mortgage; if it would be to your advantage to make a joint decision that one of you pays more of the mortgage and the other pays more of other household expenses, I see no reason why that wouldn't be allowed.

However you decide to split up your costs amongst yourselves, you each need to claim the deduction based on actual mortgage payments. You can't just go through the year paying 50/50, decide at tax time that it would have been more advantageous if one of you had paid more, and claim it on your taxes as if you had paid unequal amounts.

[zephyr911]

You need to claim the mortgage interest deduction proportional to how much each of you actually paid during the year, as Redcedar's quote from Publication 936 cites. There's no rule requiring you to each pay equal shares of the mortgage; if it would be to your advantage to make a joint decision that one of you pays more of the mortgage and the other pays more of other household expenses, I see no reason why that wouldn't be allowed.

However you decide to split up your costs amongst yourselves, you each need to claim the deduction based on actual mortgage payments. You can't just go through the year paying 50/50, decide at tax time that it would have been more advantageous if one of you had paid more, and claim it on your taxes as if you had paid unequal amounts.

I don't read it quite as strictly.

And if they have any commingled accounts, the distinction is definitely moot.

[seattlecyclone]

Itemized deductions are for expenses you paid. If you didn't pay it, you can't deduct it. Since you split the bill proportional to your incomes, that's the amount you can each claim.

[IloveBakari]

My fiancee and I were going to ask the very same question but then saw an already created post!

Our situation is a little different in that the house we own is actually a four-plex so the rental income that we put into a joint account pays for the entire mortgage. Since the joint account is in both of our names, there is no documentation about who owns what money. The only possible documentation is that I consistently put the same amount of money into the account every month but this money co-mingles with the money already in there.

We've also put a significant amount of money (paid from the joint account) into improving the rental units which we would want to be able to deduct.

We're not so concerned with each of us being able to claim our equal amount of deduction. We just want to maximize the deduction we can claim (even if this means that only one of us ends up claiming any deduction) but obviously want to do things above-board with the IRS.

Any advice?

[DevoCPA]

You both need to be on the mortgage to deduct the interest. You should deduct the amounts you actually paid but I agree with zephyr911 if you have joint accounts you have some wiggle room there. Just be consistent, don't split 75/25 one year and 50/50 the next. Or.....set the wedding date already!

[Jim2001]

Check with your tax professional. 

I think most of the information you're seeing here is accurate with regards to who's on title, who's on the loan, etc.  What I don't see being called out, which I've heard in the past is, it's not just who "logically" paid what, it's who "actually" paid.  If you want to split the tax deduction, you both need to have been named on the checking account at the time the payment was made, not just have contributed money to the account from which it was paid.

I'm not a tax professional, but this is the guidance I've received when asking about how to split the deduction.

[Bakari]

We are both on the mortgage AND both on the bank account it is paid from.  And both on the title.  The only potential division is the accounts that paid into the shared bank account, but both of us have put money in - I put in most of the downpayment money, shes been putting in installments.  Rental income also goes in, and repair funds come out of the same account, so there is no way to trace which specific deposit funded which specific payment.


We'll almost certainly end up having a professional look over it all, but its good to go in armed with some idea of what to expect.


If I understand y'all correctly, it sound like we should be able to give the deduction to which ever of us we want (or any split), which would be whoever it makes the bigger difference for.


(btw, we do have a date set!)

[woopwoop]

The only issue I ran into with that was that I took the deduction, he didn't, but since his name was first on the mortgage form, I ended up having to deal with some IRS bullshit the next year. Keep copies of your mortgage interest form handy!

[Jim2001]

We are both on the mortgage AND both on the bank account it is paid from.  And both on the title.  The only potential division is the accounts that paid into the shared bank account, but both of us have put money in - I put in most of the downpayment money, shes been putting in installments.  Rental income also goes in, and repair funds come out of the same account, so there is no way to trace which specific deposit funded which specific payment.

If I understand y'all correctly, it sound like we should be able to give the deduction to which ever of us we want (or any split), which would be whoever it makes the bigger difference for.

So, the two of you should look at who would benefit more, i.e. who's in the higher effective tax bracket and lean things that way.

(btw, we do have a date set!)

Congratulations!

[AlwaysBeenASaver]

We each take half of the mortgage interest deduction and half of the property tax deduction. Both of our names are on the 1098, although it lists the last 4 digits of my SSN and not his. We've been doing this for 8 years and so far the IRS hasn't asked any questions about it.