How to File Taxes After Buying a House With Someone

Buying a home with someone else brings financial benefits but also tax complexities. How you file your taxes affects deductions, credits, and potential liabilities, making it essential to understand the rules before submitting your return.

Tax treatment depends on ownership structure, mortgage payments, and expense-sharing arrangements. Proper documentation ensures both parties maximize deductions while avoiding IRS issues.

Filing Status Factors

Your tax filing status after purchasing a home depends on your relationship and IRS classification. Married couples can file jointly or separately. A joint return typically provides greater benefits, including a higher standard deduction ($29,200 for 2024) and full access to the mortgage interest deduction. Filing separately may be beneficial if one spouse has significant deductions that would be reduced by the other’s income.

Unmarried co-owners must file individually, meaning deductions and credits must be divided. The IRS does not allow two people to claim Head of Household for the same property unless they maintain separate living spaces and meet support requirements for a qualifying dependent. If one person qualifies as Head of Household due to supporting a dependent, they receive a larger standard deduction ($21,900 for 2024) compared to filing as Single ($14,600).

Ownership Proportions

Ownership structure affects tax benefits and responsibilities. The most common forms are tenants in common and joint tenancy. Tenants in common hold specific percentages of the property, which can be unequal, and deductions are typically split accordingly. Joint tenancy means both owners share equal ownership, regardless of financial contributions.

Ownership percentages should reflect financial contributions to avoid IRS scrutiny. If one person paid 70% of the down payment and closing costs while the other contributed 30%, an unequal ownership split should be documented in the title and tax filings. The IRS expects deductions to align with financial responsibility, and a written agreement can clarify how they will be divided.

If one owner covers a larger share of ongoing expenses, such as homeowners insurance or maintenance, this does not automatically change their ownership percentage for tax purposes. However, it may affect capital gains taxes when the home is sold, as gains are typically calculated based on ownership interest. Keeping thorough records of payments is important for accurately reporting deductions and determining gains or losses upon sale.

Mortgage Interest Reporting

The mortgage interest deduction can provide significant tax savings, but co-owners must report it correctly. Lenders issue Form 1098 to the primary borrower, listing total mortgage interest paid. The IRS does not automatically allocate the deduction between co-owners, so each must claim their portion based on actual payments. If one person pays a larger share, they are entitled to a correspondingly higher deduction, regardless of loan document order.

To ensure accurate reporting, co-owners should keep bank statements or payment records. If the lender reports the full interest amount under one Social Security number, the person receiving Form 1098 must attach a statement to their tax return explaining the split and providing the co-owner’s name and Social Security number. Misreporting the deduction can result in penalties or disallowed claims.

Property Tax Allocation

Property taxes can be deducted on federal income tax returns, but co-owners must determine who claims the deduction. The IRS allows taxpayers to deduct up to $10,000 in state and local taxes (SALT), including property taxes, on Schedule A of Form 1040. Since this cap applies per tax return rather than per person, co-owners must allocate the deduction strategically, especially if one party has already reached the limit due to other state or local tax obligations.

The deduction is generally based on the amount each person actually pays rather than ownership percentage. If both co-owners contribute equally to property tax payments, they can split the deduction accordingly. However, if one person pays the entire tax bill, they are entitled to claim the full amount, provided they do not exceed the SALT cap. To substantiate claims, individuals should maintain detailed payment records, such as canceled checks or bank statements.

Handling Joint Expenses

Homeowners share ongoing costs, including utilities, maintenance, and homeowners insurance. While these expenses do not directly impact federal tax deductions, they can affect financial arrangements between co-owners, particularly when one party contributes more than the other. Establishing a clear agreement on how costs are divided can prevent disputes and ensure fairness.

If one person pays a disproportionate share of expenses, it may be considered a gift under IRS rules if no repayment arrangement exists. The annual gift tax exclusion for 2024 is $18,000 per recipient, meaning contributions exceeding this amount could require filing a gift tax return (Form 709). This typically does not result in immediate tax liability but may reduce the giver’s lifetime exemption. To avoid complications, co-owners should document shared expenses and reimbursements.

Implications When Selling

Selling a jointly owned home introduces tax considerations, particularly regarding capital gains. When a primary residence is sold, individuals may exclude up to $250,000 of gain from taxable income ($500,000 for married couples filing jointly) under the IRS’s primary residence exclusion, provided they meet the ownership and use tests. Each co-owner applies this exclusion separately, meaning unmarried individuals can collectively shield up to $500,000 if they both qualify.

If the home has appreciated significantly, any gain beyond the exclusion is subject to capital gains tax, which ranges from 0% to 20% depending on income. Ownership percentage determines how proceeds and taxable gains are allocated. If one owner contributed more to the purchase or improvements, they may claim a larger share of the adjusted cost basis, reducing their taxable gain. Keeping records of renovations, closing costs, and other capital expenses can help minimize tax liability when selling.