mortgage interest deduction on co-ownerhip

[nofear3boys]

Girlfriend and boyfriend buy a house 50/50, and they pay the mortgage out of a joint account and they each file their own single return. If they agree, is is OK to put all the mortgage interest on only one of the returns, instead of splitting between the two. If have to split, then they would each just be using the standard deduction, and so basically the interest would be of no benefit to either.

[Kram BergGold]

No

You can only deduct what you pay. In your post they each contributed 50%. So they each deduct 50%. Tell them to have one person pay all in year 2 and the other pay all in year 3., etc. In some situations similar to this, you might try saying one gifted money to the other but where they each own 1/2 I don't think that works.

[Gretel]

I agree that separate checking would be better but I am not sold yet, that they need to split 50/50. Maybe one of them puts 5 times as much funds into the checking account than the other person. Wouldn't that chance the % of mortgage payment each one makes?

[TAXNJ]

Agree with both reply posters. Also do a search on this site for same subject. It was addressed within the past year.

[ttbtaxes]

I'd be concerned if they decide to have one person make all of the payments on the mortgage and claim the interest and taxes fully. They've established a track record of paying 50/50 and the new 100/0 payment plan would serve no legitimate purpose other than tax avoidance.

[Burke]

I agree that separate checking would be better but I am not sold yet, that they need to split 50/50. Maybe one of them puts 5 times as much funds into the checking account than the other person. Wouldn't that chance the % of mortgage payment each one makes?

That's one way of figuring it. You need to satisfy yourself that that is the case however. That means going through their bank statements and documenting the amounts they deposit, which is a lot of work. Have them do it. This would also apply to any real estate taxes and/or mortgage insurance premiums paid out of this account as well as any other deductible items such as contributions, etc. which may appear on the Schedule A.

[Gretel]

I'd be concerned if they decide to have one person make all of the payments on the mortgage and claim the interest and taxes fully. They've established a track record of paying 50/50 and the new 100/0 payment plan would serve no legitimate purpose other than tax avoidance.

You are implying things that we do not know and then come to a harsh conclusion, how is this helpful?

[ttbtaxes]

You are implying things that we do not know and then come to a harsh conclusion, how is this helpful?

Not implying anything about the situation of the OP. What I'm saying is that if the client asked me to help them structure the arrangement in a way that would be most advantageous, I'd be very reluctant to tell them to have one person pay the mortgage property taxes and claim them in the entirety. If someone else is not so concerned, then have at it and claim it fully on one return.

[Roland Slugg]

There was a 2012 case similar to your facts ... in fact the taxpayer wasn't even on the house's title nor on the loan! He had, however, contributed about 1/8th of the down payment, and he paid all the monthly mortgage payments and real estate taxes. On his return he claimed the entire amount of interest paid, $87,000, as a deduction, and IRS disallowed it.

The court ruled that he had an equitable ownership in the property and allowed the full deduction for the mortgage interest he paid, even though it exceeded his proportionate share of mortgage interest. (Conrad Y. Edosada, TC Summary Opinion 2012-17).

Note that the court commented on the interest he paid (emphasis added). I would recommend that your clients set up two bank accounts, with one of the people funding the account that's then used to pay the mortgage payments all year as well as the real estate taxes. They might want to alternate that every other year for equity reasons, but it really isn't necessary. They can even arrange for all charitable contributions and other tax-deductible payments to be paid from that same account, thereby maximizing their tax deductions.

As for 2016, if the bank account that was used to make the mortgage payments, pay the property taxes, etc. was a joint account, than I believe it's all right for one person to take all the deductions ... but it's a bit more uncertain. Just ask them to be sure that the person who claims the deductions contributed at least that much into the account during the year.

[TAXNJ]

REPEAT ? - This is exactly as the 3-17-16 post see link below:

http://forum.thetaxbook.com/showthread.php?26598-A-taxpayer-her-boyfriend-and-Schedule-A-deductions&highlight=Mortgage+payments

Posters should consider doing a "search" before posting.

[ttbtaxes]

A discussion of how to divide/allocate mortgage interest can be found in Rev. Rul. 71-268 and IRS Letter Rulings 201451027 (TAM), 8246073, 8143097.