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George Saenz, the Bankrate.com Tax Talk columnistShare a house, not the mortgage interest

Dear Tax Talk,
My boyfriend and I bought a house together. He's been making the entire mortgage payments. Do we both have to deduct the mortgage interest on our individual tax returns, 50-50? Or should he deduct the entire mortgage interest amount on his tax return?
-- Chang

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Dear Chang,
When it comes to joint ownership of property, each owner usually claims his or her share of expenditures paid during the year. For unmarried taxpayers who share financial interests, this could be an advantage when structured properly. All single taxpayers are entitled to a standard deduction of approximately $5,000. If the taxpayer's itemized deductions, such as mortgage interest and real estate taxes, exceed the standard deduction, he or she can claim this higher amount.

For example, let's assume the mortgage interest and taxes for the year are $10,000. Assuming your boyfriend paid these in full during the year, he would have $10,000 in deductions on his tax return and you would claim the standard deduction (assuming you don't have sufficient itemized deductions on your own). So, combined, you would have $15,000 in deductions to write off against your incomes.

If, instead, you each paid half of the taxes and interest, you each would have $5,000 in deductions for a combined total of $10,000 in deductions to write off against your incomes. You don't have to be rocket scientist to know that the former arrangement is better than the latter.

To maximize this advantage, the partner with the higher income should be the one to pay the mortgage interest and taxes and claim them as a deduction in full. I also recommend that the partner pays the expenses out of a separate bank account to avoid challenges from the Internal Revenue Service.

To ask a question on Tax Talk, go to the "Ask the Experts" page and select "taxes" as the topic.

Bankrate.com's corrections policy -- Posted: Nov. 15, 2006
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