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Understanding Joint Home Ownership and Taxes with O1ne Mortgage

Home ownership comes with several tax benefits, including deductions for mortgage interest and property taxes, as well as credits for energy-efficient home improvements. But what happens when you share ownership of a home with a spouse, partner, or roommate? At O1ne Mortgage, we want to help you navigate the complexities of joint home ownership and ensure you maximize your tax benefits.

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 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 recommends splitting deductions for property taxes and mortgage interest equally, provided you itemize deductions and file separate tax returns. Note that 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 ($375,000 if you’re married filing separately) is deductible.

Splitting Mortgage Interest With a Single 1098

If your lender reports mortgage interest on a single Form 1098, you can still split the deduction. The person listed on the 1098 should report their share of the interest on their tax return, using the 1098 as backup. Other co-owners 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 the co-owner.

What if You Don’t Own the Property Equally?

Co-owners who hold title as tenants in common may own unequal shares in a home. For example, one partner may own 80% of the property while the other owns 20%. In such cases, you may divide your deductions according to your ownership stake and the expenses you’ve paid. The IRS is primarily concerned with ensuring that the total amount of interest and property tax deductions does not exceed the amounts reported on your 1098 and paid in property taxes.

To further document your expenses, consider paying your share directly to the lender or tax assessor from individual accounts. This can help demonstrate to the IRS that you paid your portion 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. However, married couples filing separately must both choose to itemize or take the standard deduction. Mortgage interest is only deductible for the first $375,000 of debt per spouse, and the deduction is available to the person who paid the mortgage. If paid from a joint account, each spouse typically deducts 50%.

It’s essential for all co-owners to keep records showing how they’ve divided deductions or credits. This ensures accurate reporting on tax returns and provides a clear explanation 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 working with a tax advisor. They can help you split deductions fairly and offer insights on lowering your tax bill.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. Our team is here to assist you with confidence and expertise.

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