“How to Share Tax Deductions and Credits in Joint Home Ownership”

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How Does Joint Home Ownership Affect Your Taxes?

Home ownership comes with several tax benefits, such as deductions for mortgage interest and property taxes, and credits for energy-efficient home improvements. But what happens when you share ownership with a spouse, partner, or roommate? Joint home ownership doesn’t mean you have to miss out on these tax advantages. Here’s how you can share the tax benefits of owning a home with co-owners.

Paying Expenses From a Joint Account

If you and your co-owner pay expenses from a joint account, the IRS recommends splitting deductions for property taxes and mortgage interest equally, provided you itemize deductions and 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 also deductible.

Splitting Mortgage Interest With a Single 1098

When you have a single mortgage, your lender will likely report the mortgage interest on one 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 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 agreement, you can divide 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.

The IRS is more concerned with accurate splitting of deductible expenses than the method used. The total interest and property tax deductions should not exceed the amounts reported on your 1098 and paid property taxes, respectively. To further document your share of expenses, consider paying your portion directly to the lender or tax assessor from individual accounts.

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 reported on a single return. However, married couples filing separately must both choose to itemize or take the standard deduction—no mixing and matching allowed. Mortgage interest is deductible for the first $375,000 of debt per spouse, and the person who paid the mortgage gets the deduction. If paid from a joint account, each spouse typically deducts 50%.

All co-owners should keep records showing how they’ve divided deductions or credits to 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 sharing deductions and credits, consider consulting a tax advisor. They can help you figure out how to split deductions fairly and may offer valuable insights on lowering your tax bill.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate the complexities of home ownership and ensure you get the most out of your tax benefits.

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