Two people (not married) own a house, no mortgage. The person paying the property taxes doesn't have enough income for the income tax deduction to be meaningful.
Can the other co-owner take the deduction for the taxes paid by the other co-owner?
Seems to me that the payment can be treated as a gift to the non-paying owner, so that it can be deducted by the non-paying owner.
Am I off base? What are the options?
Thanks.
The one paying the real estate taxes and interest is the one to deduct them.
There is case law to support that amounts paid by one individual on behalf of another are gifts to the second individual. In such a case, if they are (for example) child care expenses, mortgage interest, medical expenses, etc. they would be deductible by the second individual. One case, for example, is Lang v. Commissioner, TC Memo 2010-286
One key provision is that the individual paying the expense must not be legally obligated to pay it. That wouldn't be the case in your question because if both own it, both are obligated to pay it.
My view has always been that the answer to this depends on the ownership regime.
If the property is owned as "tenants in common," then I believe the payment by one owner of an expense share owed by another owner constitutes either a loan or a gift to the non-paying owner. Under that theory the non-paying owner would be entitled to claim a deduction for his share of the the item, and the paying owner would not. (In other words, the paying owner can't claim more than his percentage share.)
But if the property is owned as "joint tenants," then I agree with the general IRS view that the deduction goes to the owner who actually pays the item, to the extent of such payment.
MTW
I agree, but if one didn't pay, the other would be legally obligated to pay or lose the house.
If they co-own it, are they each legally obligated to pay the full tax, or are they only obligated to pay their half of it? In the latter case, could they consider half of the tax payment to be a gift, and the non-payer would be able to deduct that half from their tax?
I agree with this opinion. How the property is titled affects the answer.
I would call such an arrangement a partnership, in which case "not meaningful" would probably imply that an NOL might exist for that owner (assuming it were a business property). Otherwise, one could write or amend a partnership agreement to cover what happens in such a situation and direct a split other than equal shares.
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