Today TaxMama hears from Bill in New Jersey, with this story. “ I am living with my girlfriend. We both work and bought a house together in July of 2008. We can both use the mortgage interest write offs on our taxes. Is it possible to simply take the total interest we paid last year and split it in half when preparing our tax return?”
Basically, if you are both consistent and your combined mortgage interest deduction is less than or equal to the total interest paid, you should have no problem, regardless of how you split the deduction.
However, if there is an audit, IRS will look to see who paid the mortgage. If you each made half the payment, again, no problem. If one of you paid a larger share of the mortgage, the interest should be split based on that proportion.
I suggest that you establish a joint account for household purposes. Both of you fund the account throughout the year and use it to pay for the mortgage, property taxes, homeowners insurance, utilities, cable, Internet and routine maintenance. That way, there will be a lot of non-deductible expenses paid out of the joint account, too, which you can allocate to one of you, if the other needs to use a larger percentage of the interest and property taxes.
Do it right, and in the event of an audit, you will be able to prove that whoever took the mortgage and tax deductions actually put in enough money to cover that expense. Now you have the flexibility for any split you want to make.
Incidentally, if one or both of you qualify for the first-time home buyers credit, be sure to use it. Note: if only one of you qualifies, you can only use half the credit.
And remember, you can find answers to all kinds of questions about cohabitating and other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
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