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Buying a home with Junior

By Jennie L. Phipps · Bankrate.com
Thursday, March 22, 2012
Posted: 5 pm ET

Most people's retirement planning doesn't include sharing a home with their children, but in the last few years, faced with an economic downturn, the number of households where Junior has commandeered the couch has increased dramatically.

According to an analysis of U.S. Census data by the Pew Trust, 21.6 percent of people ages 25 to 34 are living in multigenerational households. That's up from 15.8 percent in 2000.

A follow-up survey of these boomerangers indicated that life on Mom's couch isn't so bad. Some 78 percent say they are satisfied with their living arrangements, and 77 percent are optimistic about their future finances. About half report that they are paying rent to their parents, and 89 percent say they kick in to pay other household expenses.

In light of this, I think it is interesting to note that a recent decision in the U.S. Tax Court concluded that as a result of the federal Defense of Marriage Act, which defines marriage as the legal union of one man and one woman, people -- like Mom and junior -- who aren't married but buy property together must share the deductible-debt limit of $1.1 million instead of being allowed to deduct the total amount each paid.

Larry Elkin, a certified public accountant who is the president of Palisades Hudson Asset Management in Scarsdale, N.Y, writes in his blog that two unmarried people who decide to buy a property together and share it could find this ruling an expensive impediment to their plan.

There's not much way around it, he says in an email to Bankrate.com. "The IRS will take the position that deductible mortgage debt is limited to $1.1 million, including home equity debt. Mom/Junior simply need to be aware of the limit. It's not so big a factor if the interest payer is in a low tax bracket, especially since mortgage rates are very low. But as those variables change, the issue becomes more substantial."

I realize that mortgage payments in excess of $1.1 million seem like a lot of mortgage debt to people who live in the heartland, but it isn't such a big nut if you live on either coast. As people of all income levels move into retirement, it is in everybody's best interest for the government to encourage cooperative living situations instead of discouraging them.

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