Will being the rent middleperson complicate my taxes?
August 30, 2022 7:48 AM   Subscribe

You are not my tax professional. But maybe you can share some knowledge! My taxes are generally dead simple. I have one job. I pay taxes on that income. Boom, done. However this year might be messier.

I just moved to a new apartment with my partner. The management company set up for rent is an automatic debit withdrawal (yes this is terrible! Too late, we are on a lease!) and even though there are two of us on the lease, only one person's account may be used for the withdrawal. I'm the designated account for this (it's fine, don't worry. Not a relationship question; my partner is good for the money.) He had to transfer his share of rent to me. Will this look like income to the IRS? Will I owe on it? We are in Massachusetts if this makes any difference.
posted by prewar lemonade to Work & Money (10 answers total)
 
Response by poster: We've thought about using a joint account for this, but we use two different banks so one person would have the hassle of transferring money every month to a bank outside their system. Maybe that would be the best solution, though?
posted by prewar lemonade at 7:53 AM on August 30, 2022


I've done this for years with my roommate and never thought it could be a problem. I auto-transfer my share of rent to her monthly and she pays the property manager.
posted by buildmyworld at 7:56 AM on August 30, 2022 [2 favorites]


Best answer: I used to live in Massachusetts and have ridiculous taxes. The IRS doesn't look at money coming into and out of your bank account EXCEPT that if you have a interest bearing account, you will pay a tiny amount of taxes on that interest which will be a teeny bit higher (negligible really depending how high your rent is and how long your partner's $ stays in your account) because your partner's money is in there.

It's is certainly possible to have a joint account and then have the money from both your accounts auto-debit into the shared account in a way that is probably pretty straightforward, but if this current setup works for you, it should be fine. The only thing to be aware of in Massachusetts is the rent deduction you may be eligible for but I think you can just self report that, check this web page to be certain.
posted by jessamyn at 8:04 AM on August 30, 2022


Best answer: My roommate and I have had a similar arrangement to buildmyworld's for the past year, and it had zero impact on my taxes.

Also, consider that IRS would not even see those deposits into your account unless you submitted your bank statements to them; I've never had the IRS ask me for my bank account statements, and I'm assuming neither have you. So the IRS wouldn't even know those transfers exist anyway.
posted by EmpressCallipygos at 8:04 AM on August 30, 2022 [1 favorite]


Best answer: I’ve done this for years. That money is not income and you don’t need to report it as income and nobody else reports it as income so it doesn’t affect your taxes at all.

Apparently banks are required to tell the IRS when deposits over $10,000 are made, but I don’t think those are automatically assumed to be income either, just potentially investigated to see if they are unreported income.
posted by aubilenon at 8:41 AM on August 30, 2022


I have the same taxes as you & the IRS has never asked to see my bank statements.

In terms of simplicity, your partner can just direct deposit his share of the rent into the account the money is coming from. I have a dedicated rent account that does nothing but take the direct deposit & send out the rent payment & it all just goes without having to think about it.
posted by bleep at 8:42 AM on August 30, 2022


This is a very common set up with roommates even if there isn't direct debit. Many places will only take one check. Neither of you is renting from the other, it is just a joint bill.
posted by soelo at 8:45 AM on August 30, 2022 [1 favorite]


Best answer: There are two questions here: is this money "actually" taxable, and will the IRS hassle you about it. I'm pretty sure that the answers are no and no.

For the first part, Pub 525 tells you what is income and what isn't from the IRS's perspective, and while this situation isn't explicitly excluded, it also isn't specifically included, and similar situations are specifically called out as not counting as income (like if you're carpooling and your passengers reimburse you for gas).

For the second, if you get audited, which is quite unlikely, my understanding is that the IRS will ask to see your bank statements to make sure that you aren't hiding any income. But this will show the money going out as well as the money coming in, and you'll have a clear explanation for what's going on (you could even show them the lease!) And if you don't get audited, they'll never see your bank statements in the first place.
posted by goingonit at 9:21 AM on August 30, 2022


Best answer: goingonit is completely correct: It is not income, it is just reimbursement. And even in a theoretical world where the IRS somehow doubted that it was reimbursement, it still wouldn't be income, it would be a gift. And unless your roommate is giving you more than $12.06 million, you would not owe gift tax (though if you receive a gift of more than $16,000 this year, you do have to do some paperwork, and you might owe additional taxes in the future if you inherit or receive a gift of more than $12.06 million, or whatever the limit is in the future.)
posted by Mr.Know-it-some at 11:32 AM on August 30, 2022


Response by poster: Thank you everyone! Appreciate the insights.
posted by prewar lemonade at 11:53 AM on August 30, 2022


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