Do I have to call myself a landlord if my SO helps with my mortgage?

March 29, 2009 5:31 PM

I own a house. Boyfriend lives with me, pays me "rent" to help out with my mortgage. He wants to claim his rent payments on his taxes. But I don't want to be his landlord -- at least, I don't want the IRS to think I'm a landlord. What to do?

I know you are not my accountant. I don't have one, otherwise I would ask them. (I use TurboTax Deluxe.)

My boyfriend moved in with me last summer, and he wants to get some tax credit on the "rent" (half the mortgage payment) he's been paying me (via check, directly to me). However, I think that if he does this, I will get in a mess of trouble with the IRS for not claiming my house as a rental property, or calling myself a landlord, or some other mess I can't even begin to imagine. I am inclined to tell him he's out of luck and to consider his rent payments to me "gifts" or something (which he is willing to do, to avoid any headaches), but maybe I'm being overly cautious? What should I do?

posted by chowflap to work & money (18 comments total)

I had this same issue, I owed the house, SO paid rent to me. We decided that I would pay him whatever credit he was due and he would not claim it on his tax return. He was happy with that, but I don't think he ever bothered to figure out how much it was I owed him.
posted by sulaine at 5:44 PM on March 29 [1 favorite has favorites]

You don't get a tax deduction for "rent". As a home owner you can deduct the interest you pay on your mortgage(s) & part of your property taxes. For him to "split" that with you, you both would have to be named on the title to the property. fyiianaa.
posted by patnok at 5:45 PM on March 29

For federal, there is no tax credit or deduction for paying rent. He can't declare his rent as mortgage payments simply because he has no ownership stake in your house.

For the state/city listed in your profile location, he might qualify for a renter's credit which, if it's anything like most renter credits will add up to a few hundred bucks and is small potatoes compared to the costs to you in declaring his rent payments as income on your fed and state taxes. You could just offset the rent by that amount or I dunno, pick up the cable bill a few extra months.

or some other mess I can't even begin to imagine
Not declaring his rental payments as income. If the IRS catches onto that, they will send a tax bill with interest and penalties.
posted by jamaro at 5:47 PM on March 29 [1 favorite has favorites]

Rent's not generally deductible.

If he's claiming half the mortgage interest deduction, that's OK, as long as you don't count it, too. You can only claim the part he is not claiming and vice versa. Allocate it any way you want, just be prepared to explain it.

The IRS could give a happy damn about this. Unless you're renting him the Biltmore Estate, you are unlikely to ever have to explain it.

If you really 'rented' it to him, the way it sort of generally works is that you can claim the mortgage interest deduction, PLUS depreciation on the rented portion, PLUS expenses on the rented portion, PLUS prorated insurace, etc. on the rented portion, etc., but you'd then have to count the rent as income.
posted by FauxScot at 5:51 PM on March 29

In Massachusetts, where chowflap appears to be, half of rent paid is state tax deductible.
posted by found missing at 5:51 PM on March 29

He can't get any money from the IRS for rent that he pays. There's no deduction for rent.

If you take the mortgage interest deduction and want to give some of it to him, like Sulaine said, then that's between the two of you. If you and your boyfriend live together and he didn't sign a lease, then I think you might be in a gray area as far as being a landlord.
posted by jefeweiss at 5:56 PM on March 29

Um, can we stipulate that chowflow meant the Mass Department of Revenue, rather than the IRS, and that boyfriend *can* deduct 1/2 of rent paid on state taxes.
posted by found missing at 5:59 PM on March 29

So, if chowflap's boyfriend claims the Mass. rental deduction (which must be done by indicating the property address), does chowflap get flagged at the state level to make sure she claims rental income? And, could that information also be shared by the Mass DOR with the IRS?
posted by found missing at 6:11 PM on March 29

If he claims a rent deduction on his state taxes like one can do in Massachusetts, then theoretically the State Dept. of Revenue & IRS could put two & two together and expect you to declare the rent you receive from him as income. I ran into this problem when paying rent to my Mom. She didn't declare it as income, I didn't take the deduction, but chances are it all came out in the wash since my "rent" wasn't full market value. For peace of mind, I would ask your boyfriend to forgo this deduction, and offer to make it up to him some other way. Also, for what it's worth, I don't think there's such a thing as "overly cautious" when tax agencies and technicalities are involved.
posted by katemcd at 6:16 PM on March 29

The IRS could give a happy damn about this. Unless you're renting him the Biltmore Estate, you are unlikely to ever have to explain it.

Him claiming the interest deduction without a backing Form 1098 from a lender is a red flag I wouldn't want on my return.

Either this rent thing is a proper business relationship -- involving taxes on your end and tax credits on his -- or it isn't.

If the annual amount is under the $12,000 annual gift exclusion then I'd just call it a gift and leave it at that, even though he's might think he's losing money on the deal.
posted by mrt at 6:24 PM on March 29

Having had boarders and done all the paperwork to make it legal, I will corroborate chowflap's instinct that she most emphatically doesn't want to be treated as a landlord. It's not just paying income tax on the additional income, it's the depreciation on the home as a business asset, and recouping the depreciation if you ever sell it…it gets very complicated. Boyfriend's savings on taxes will probably be more than offset just by the extra time Chowflap would have to spend with an accountant getting everything straightened out, never mind Chowflap's added tax burden.
posted by adamrice at 6:33 PM on March 29 [1 favorite has favorites]

I'm pretty sure that if he doesn't have his own separate bedroom, then he'd have a hard claim of you in a landlord role. Despite that, your boyfriend has had the convenience of probably cheaper rent than he'd have if he were really renting the place. He needs to decide if giving himself a tax break he's accustomed to is worth potentially wrecking both of your tax lives (but only in the event of an audit.)

While on his MA taxes, he does not need to identify his landlord, nor does he need to submit a letter from his landlord, if in the future either the two of you do get audited, this information will need to be available. If in 6 years the two of you are married, he'd be messing up his own tax reccords. If you aren't together at the hypothetical 6-year audit, then as long as there is no signed document you have the right to refuse his claim as a tenant, and he would have no supporting documentation to indicate his rental agreement. That ofcourse, would mean the whole affair would get really messy and expensive for not just you, but for him too.

He needs to let it go, claim what I assume is a partial year from whereever he lived before he moved in with you, and live with the advantages of being in a commited relationship. And if he doesn't want to, you've just become a landlord of a tennant at will... Give him his 30 days notice and tell him he's sleeping on the couch until he's out.
posted by Nanukthedog at 6:40 PM on March 29

FWIW, I just checked line 14 a second time on my MA taxes, under nowhere does it indicate that he has to identify his landlord.
posted by Nanukthedog at 6:47 PM on March 29

The maximum rental deduction in Massachusetts is $3000. The tax rate is 5.3%. Is it worth giving up $159 of a shady tax credit to know you'll never have tax or legal problems over this issue? It would be for me.
posted by Mapes at 6:49 PM on March 29 [3 favorites has favorites]

Mapes: The maximum rental deduction in Massachusetts is $3000. The tax rate is 5.3%. Is it worth giving up $159 of a shady tax credit to know you'll never have tax or legal problems over this issue? It would be for me.

Exactly. Is this hassle worth $159?
posted by JackFlash at 7:40 PM on March 29

As others have said, just take $159 off his next month's payment toward the mortgage and call it even.

under nowhere does it indicate that he has to identify his landlord

His address is on the tax return. Tim Cahill's folks can find out who owns that property with a couple of keystrokes. Do not fuck with the Mass Department of Revenue--they are bulldogs. Only CA and NY are more tenacious.

It's not worth the risk for him to get $159 back on his taxes.
posted by Sidhedevil at 8:51 PM on March 29

Oops -- yes, I meant the MA state tax credit. Thanks everyone for their responses -- I will ask him kindly to refrain. (Our deal is that he doesn't have to pay our monthly homeowners' association fee, or for any repairs/new appliances etc., so he gets a pretty good deal out of this arrangement.)
posted by chowflap at 8:51 PM on March 29

The only way to do this is to add him to the mortgage and deed and split that deduction (and the property taxes). Unfortunately if you do that, depending on the value, you might both drop below the standard deduction level. Lots of unmarried couples, though by no means all, do this.

You might want to consider marriage for the tax benefits, especially when filing jointly. That is, it would be easier than all of this cui bono rigmarole.
posted by dhartung at 12:21 AM on March 30