If you own a home jointly with someone else it can be hard at tax time to figure out who gets the deductions. Consulting a professional is always the best thing to do for any areas that are gray. For a few quick tax tips for joint home ownership, read on.
Determining What Type of Joint Ownership You Have
First it is important to know what kind of joint ownership you have entered into. In a "joint tenants with right of survivorship" (JTWROS) each owner is considered to have 100% ownership of the property. In this situation, if one tenant passes away, the other remains to own the entire property with only having to remove the name of the deceased from the deed. In a "tenants in common" (TIC) situation, each person is considered to own a certain percentage of the home laid out at the time of purchase. This is usually a 50/50 situation, but not always since the percentages are determined by how much each contributes at the time of purchase. When one tenant passes away, their share of the property goes to whomever they have left it to, and all the benefits along with it. Also, one tenant may sell their share of the property without the approval of the other.
Tax Tips For Joint Home Ownership
For tax purposes, if you are a joint tenant with right of survivorship than the tax deductible expenses must be claimed by the person who actually pays them.
For married couples filing jointly, you just deduct the mortgage interest from your total combined income.
If you file separately from the other home owner, than you must claim the portion of the deductions that you pay for, and only the ones you pay for.
In a tenants in common scenario, your tax deductions must be deducted according to the percentage of ownership you hold.
Another great tax tip for joint home ownership that applies to couples is this; allow the person with the greater net income to make higher payments towards the home. This allows them to take the entire deduction and results in improving the benefits from the tax exemption on principle and interest repaid. Having one partner pay significantly more or all of the payment towards the home can be easily offset by having the other partner be exclusively responsible for other bills in the home.
Bonus Tax Tip
To get incredible savings at tax time, a lot of people start their own small home business. Something such as an online business that you work at a few hours per week can not only bring in a significant amount of extra income, but can also provide you with huge tax write offs. When you run any kind of business out of your home you can write off a portion of your mortgage, property tax and utility bills. If you run an online business, you can write off your internet, computer costs and any office furniture you may need. This adds up to huge savings at tax time, not to mention extra income for a rainy day!