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Old 01-19-2012, 03:23 PM
 
Location: Center City
3,915 posts, read 3,092,014 times
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Default Unmarried couples and mortgage interest deduction

My partner and I jointly own and home and have a shared mortgage which we pay from a joint account we both contribute to. Is it possible/legal for the one of us in the higher tax bracket to claim ALL the mortgage interest as a deduction when filing taxes?

Last edited by Pine to Vine; 01-19-2012 at 03:39 PM..
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Old 01-19-2012, 03:44 PM
 
Location: Scottsdale, Arizona
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It is ok if one of the two parties takes the mortgage interest deduction as on their tax return as long as the other one does not. Assuming that your partner does not even file a Schedule A - and then you do, with the 1098 related to the mortgage interest, it does not matter to the IRS which person used the deduction.

In 2005 when I got divorced, and having handled all of the finances and tax related stuff during my marriage, my ex-wife did not even know what a Schedule A was and I'm still convinced that she to this day does not know that mortgage interest is deductible. That year while separated, she filed a 1040 with no schedules and took the standard deduction. I was getting all of our mail, and had the mortgage interest statement which showed over $18k in mortgage interest and over $3k in property taxes and had my accountant use them with my return. Needless to say, the extra $21k deduction was a great bonus and totally ok with the IRS.

In the event that both parties were to try to take the deduction on separate returns, when the IRS figures that out, they would just amend both returns to account for a 50/50 split of the deduction and then send both parties an assesed tax bill based on that, if there was one, factoring in all other deductions, credits, etc. It only makes sense for one person in that case to actually take the entire mortgage interest deduction since it leaves the other person clear to take the standard deduction on a return without a Schedule A attached.

In the good old days of homes appreciating, and after over a decade of taking the mortgage interest deduction though, I always felt like there was something inherently wrong with a tax system that let people take deductions for mortgage interest on a piece of real property that was appreciating year by year and then someone that rented an apartment did not have a parallel option. It set up kind of a form of social stratification along socio-economic lines that really at the end of the day subsidized if not directly rewarded home ownership through the tax code. And artificially inflated the cost of homes since in the midst of the shell game known as owning a home, a person was offsetting the actual cost of the house by writing off mortgage interest and property taxes and lowering their taxable income. Even more so with people that had mortgage interest on homes in excess of 500 or 750k. If the homes were primarily financed, the amount in terms of mortgage interest deductions that people with those levels of incomes were getting in most cases exceeded the median income level alone of most working Americans. Anyway, all of that collapsed as it should have and the deductions for owning a home now are far more reduced overall when you consider the drop actual home values that has taken place in the last three years. The free market is a biyotch, and always makes corrections eventually despite the best attempts of neo-statist policy makers and the mystics of the tax code temple in Washington DC.

Sky-O
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Old 01-19-2012, 03:47 PM
 
Location: US Empire, Pac NW
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1. Why in the world would you jointly own a home you are not married to? (Unless you are homosexual ... in which case I feel your pain)

2. Sounds like something you need to ask a tax advisor on, not some armchair amateurs and trolls and at best uninformed masses in the inter tubes.
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Old 01-19-2012, 03:51 PM
 
Location: Scottsdale, Arizona
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Quote:
Originally Posted by eskercurve View Post

2. Sounds like something you need to ask a tax advisor on, not some armchair amateurs and trolls and at best uninformed masses in the inter tubes.

She can get a qualified answer at www.irs.gov in under five minutes by reading the instructions for a 1040 Schedule A.

It says right in them that the IRS is not concerned with who takes the deduction as long as the correct amount is deducted on one of the forms.

I have a friend that is in a similiar situation and both him and his longtime girlfriend alternate years that they take the mortgage interest deduction on their returns. With the other one taking the standard deduction on the alternate years.

It's not rocket science. "Tax advisors" would like people to think that it is since they make more money advising on something that seems complex but is not.
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Old 01-19-2012, 04:20 PM
 
Location: Center City
3,915 posts, read 3,092,014 times
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Wow - lots of good advice fast. You gotta love CD.

First off:
Quote:
Originally Posted by Skydive Outlaw View Post
She can get a qualified answer at www.irs.gov in under five minutes by reading the instructions for a 1040 Schedule A.

It says right in them that the IRS is not concerned with who takes the deduction as long as the correct amount is deducted on one of the forms.
Regarding the bolded comment, after several readings I can't find that language in the insturctions for Lines 10 & 11. Am I blind (a real possibility) or is it somewhere else?

As for this:
Quote:
Originally Posted by eskercurve View Post
Why in the world would you jointly own a home you are not married to? (Unless you are homosexual ... in which case I feel your pain)
Yes, we are gay. We would have married 16 year ago if we were permitted. It's rigamarole like this that would make gay marriage so much easier.
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Old 01-20-2012, 02:27 PM
 
Location: Pasadena
1,285 posts, read 1,795,741 times
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Skydive is correct.

It's perfectly fine for one person to take the deduction, and extremely likely to be the optimal scenario for an unmarried couple to have one person to take the entire deduction. Financially it makes the most sense for the person who makes the most money (higher tax rate) to take the deduction, or the person who has the most deductible expenses (since the person who isn't taking the deduction will likely end up with the standard deduction) outside of the mortgage deduction. If the difference in income isn't enough where the tax brackets are different, then you want to have the person with the most other deductible expenses take the deduction. Taking turns certainly works as well, but in your case since you have been together so long I assume your finances are much more like a real married couple as opposed to someone who has only been together a year or two and wants to ask this question.

In general you should plan any deductions that could be taken by either person to be all taken by one person. Say you donate 10k to a charity, you ideally want that deduction to be taken by the same person who takes the mortgage deduction. What is best is to focus all deductible expenses to one person, that way when the other person takes the standard deduction, they aren't accruing "deductible" expenses that can't be deducted because they aren't in excess of the standard deduction.

It is not unreasonable to hire a tax advisor or planner to address this issue, but not really necessary either, assuming you are semi-knowledgeable about deductible expenses (you can always google this to get an idea about what types of expenses are deductible). The more money you make the more value an advisor has. Generally I think you can do without though, but that is of course a judgment call on your end. The fact you are knowledgeable enough to even ask this question and figure out what the deal is makes you likely knowledgeable enough to handle the planning end on your own. Just understand that planning your tax bill is different from processing the return...once the year is over all the numbers are tabulated and there is less you can do. The key here is planning out who buys what, who deducts what, so you pay as little taxes as possible within the boundaries of the law.

Last edited by drshang; 01-20-2012 at 02:41 PM..
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Old 02-08-2012, 09:53 PM
 
Location: Palo Alto
8,102 posts, read 2,175,467 times
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Don't forget about the use of a nominee interest strategy. Since you are both single and pay the highest bracket, you need to play with the numbers. If your incomes are close, it might not make much difference. If they are further apart, you can minimize your taxes.

If you have a joint investment account, for example, you can issue a nominee interest form to the guy with the lowest marginal tax rate. Same thing for a 1098. You can even apportion it. Maybe 50/50. The IRS just cares that it is only accounted for once.

Ask your CPA or tax advisor.
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Old 02-08-2012, 09:55 PM
 
Location: Texas
28,103 posts, read 22,881,067 times
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Quote:
Originally Posted by jm02 View Post
My partner and I jointly own and home and have a shared mortgage which we pay from a joint account we both contribute to. Is it possible/legal for the one of us in the higher tax bracket to claim ALL the mortgage interest as a deduction when filing taxes?
Yes. Since I have the higher salary and need the deduction, I take the entire mortgage and property tax deductions.

Only ONE PERSON should do it.
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Old 02-08-2012, 09:56 PM
 
Location: Texas
28,103 posts, read 22,881,067 times
Reputation: 33562
Quote:
Originally Posted by jm02 View Post
Yes, we are gay. We would have married 16 year ago if we were permitted. It's rigamarole like this that would make gay marriage so much easier.
Meh. For a couple of thousand bucks, you can get all the requisite paperwork done by a lawyer AND...I am SO glad my wife's salary isn't taxed at my rate.
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Old 09-11-2013, 04:34 PM
 
2 posts, read 12,641 times
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Quick Advise - incorrect advise. There are a number of tests - Must be qualified home mortgage interest. Best if they are on the mortgage. In the case of un married people they must by a co owner or an "Equitable owner" based on the facts and circumstances, has the benefits and burdens of ownership. Finally, the person must actually have paid the interest to be deductible. The IRS does care. It is one of the complications of modern life where people live together, buy property together, remain unmarried.
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