Taxes Filter: Unmarried couple homeowner tax return?

March 31, 2012 1:46 AM

You are not my accountant, or my tax professional. I am just looking for a little help on how to proceed on our tax returns since purchasing a house.

We are an unmarried couple who purchased a house last year (In Massachusetts), and we are in the process of filing our tax returns. We purchased the house equally, and share all expenses equally. The house is a multifamily property and we rent out 2 units and live in the other unit. We split the rental income. We both have other full-time jobs, if it matters.

How should we proceed? Should one of us include the house on our tax return, and the other one ignore it? Should we split all figures down the middle? When we receive the mortgage interest statement from the lender, would we divide the figure in two and each use that figure on our tax return?

We have always completed our own tax returns, so hopefully we will be able to continue doing this. Is it as simple as dividing all the figures evenly, or should we consult a professional? Thank you very much.

posted by santaliqueur to work & money (6 answers total)

I think you should treat the house as a business partnership. It is like you have a small side business, in which you are partners - and that business operates one triplex apartment building.

I also think that looking ahead, you should create a small business, like an LLC. Make yourselves partners, and deed the property to the LLC. Let the LLC have its own bank account too - the operating account for the building. This is basic asset protection. By operating the building as a business, you are insulated from liability issues.
posted by Flood at 4:26 AM on March 31, 2012

Are you both named on the mortgage and deed? Will you both be receiving real estate tax bills, or Mortgage interest statements? (Both deductible, at least for the 1/3 of the building you occupy). Do you both pay expenses, both receive rental payments? As mentioned above this all matters, especially to the IRS. Other things to consider are profits vs. depreciation. A good tax consultant is in your future.
posted by Gungho at 5:48 AM on March 31, 2012

There are two steps in the process:

1. apportion all the house-related expenses (including mortgage interest payments, taxes, etc) to personal or business use. This will probably be 2/3 business 1/3 personal since it's a 3-family house and you're in one unit. The rent all goes onto the business side.

2. Split the business income/expenses 50/50 between you and your partner. Split the personal expenses that are tax-related (e.g. mortgage interest, taxes, etc) 50/50.

After that you each file taxes and show your share of the personal and business components from steps 1 and 2.

There will also be things like depreciation to figure out and track.

I'm not an accountant but I've been in similar situations a few different times in MA, and that's a basic outline of how it works. It's actually pretty close to what you'd intuitively expect it to be.
posted by alms at 9:51 AM on March 31, 2012

This is a somewhat complicated question that you may want to ask a tax professional.

For instance, you could set it up such that the person who makes less money owns the rental units so that the rent is taxed at a lower rate, reducing your overall joint tax burden.
posted by slidell at 10:01 AM on March 31, 2012

--Maybe you can't do that since you split the rent evenly. But a tax professional can help you figure out what flexibility you have given your actual situation.
posted by slidell at 10:03 AM on March 31, 2012

I recommend having a tax professional do your returns. In my experience they can save you more than their cost. Where there are multiple ways to do it, they know the one to use. (One year I tried to duplicate our tax person's results myself and failed. Filed an extension and took it all to him.)
posted by lathrop at 11:38 AM on March 31, 2012 [1 favorite]