Itemized Deduction Question

[OtisMozzetti]

I do encounter issues similar to this with various prospective clients:

If Mr. X and Ms. Y (50% interest each) own real estate, let's say they both live there, and Mr. X pays all the real estate tax to the county, and Ms. Y pays most of the grocery bills; is it OK for Mr. X to claim a Schedule A deduction for all of the real estate tax he actually pays to the county?

[Roland Slugg]

It depends ...

... on how title to the property is held. If owned as tenants-in-common, the taxes may be deducted by each owner only in proportion to his ownership share ... i.e. prorata. If owned as JTWROS, however, each owner is entitled to deduct in full the taxes he pays on the jointly-owned property.

[OtisMozzetti]

my concern is whether there's an undisclosed agreement

... If owned as JTWROS, however, each owner is entitled to deduct in full the taxes he pays on the jointly-owned property.

OK, assume that the property is owned as joint tenants. My concern is whether "I Mr. X will pay the property tax, and you Ms. Y will pay most of the grocery bills" has to be boiled down to an agreement, oral I suppose, that X and Y will each provide half of money for the property tax?

"Has to be" in the above means IRS audit and appeals and U.S. Tax Court would see it that way...

The reason that I bother us all with this question is that I am to teach a class one week from now about Itemized Deductions, and prospective clients similar to this come along all the time.

[Gretel]

... on how title to the property is held. If owned as tenants-in-common, the taxes may be deducted by each owner only in proportion to his ownership share ... i.e. prorata. If owned as JTWROS, however, each owner is entitled to deduct in full the taxes he pays on the jointly-owned property.

I cannot imagine that each writes a check for half of the amount owned for property taxes to the county. Deduction is allowable only if paid. That is a dilemma.

Thanks for bringing up this issue. I wasn't aware that there is a difference depending on how property is titled. Makes sense but very impractical.

[S T]

More

I think it would also depend on what State that the T/P is residing. For example, California is a community property state, so if the property was held in Joint Tenancy name or as Community Property, and the funds were drawn on a joint checking account (co-mingled funds), it would not matter "who wrote" the check. Those parties would likely be a married couple filing a MJ return. Next scenario as joint tenants or co-owners could possibly be two single parties that co-own not only the property, but also the bank account that the funds were drawn on.

You did not provide the filing status, so a presumption would be married filing joint. I could see how maybe a Married Filing Separate could "muddy" the conclusion.

Now would that change on a MFJ tax return, if it was the husband's or wife's separte property and they had separate bank accounts?

If property is held in tenants as common or some other title form, and the check is drawn on only one parties checking account, then you would have to look to intent of the what the arrangement or legal documents stated. In this scenario, I would hope that each party would have issued a check for their proportionate share of the taxes or mortgage payments. Tax Filing Single or maybe Married Joint with another that was not part of the property ownership?

I could foresee several scenarios? Again wouldn't it be facts and circumstances, ownership, etc? (I am sure sure I left out a scenario or two in trying to post this)

Something to consider for your class.

Sandy

[OtisMozzetti]

not married couples

...If Mr. X and Ms. Y (50% interest each) own real estate, let's say they both live there, and Mr. X pays all the real estate tax to the county, and Ms. Y pays most of the grocery bills; is it OK for Mr. X to claim a Schedule A deduction for all of the real estate tax he actually pays to the county?

I didn't have any married couples in mind at all; I was thinking about the following types:

1. Brother and Sister
2. Same-Sex Couple, not considered married under federal rules
3. Roommates, out to save money on housing expenses
4. Common-law married, "living in sin", not recognized by this state even though a community property state
5. Son and Mother
6. Father and Daughter

and so on.

[solomon]

I didn't have any married couples in mind at all; I was thinking about the following types:

1. Brother and Sister
2. Same-Sex Couple, not considered married under federal rules
3. Roommates, out to save money on housing expenses
4. Common-law married, "living in sin", not recognized by this state even though a community property state
5. Son and Mother
6. Father and Daughter

and so on.

In some court cases when the funds were co-mingled, each person got half of the deduction. With clarity on which person paid the taxes, then it depends.

If there is joint and several liability, then the one who pays gets the deduction - regardless if the ownership is Tenants in Common. That is to say, there can be TIC ownership and yet have joint and several liability per an agreement. On the other hand, if there are fractional loans with TIC, then each person is responsible for his/her portion of the loan only. Per an agreement, this would extend to the the taxes and perhaps other items.

In short, not only the type of ownership matters, but whether joint and several liability exists.