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Hello, folks.
My girlfriend and I are planning to buy a house to live in together.
We agree to go 50-50 all the way (mortgage payment, insurance, taxes, etc.). Our questions are:
1. Can we make separate mortgage loan, say $90,000 each loan, to buy the house that cost $180,000?
2. If we're not allowed to do that and only one makes a mortgage loan to buy the house and the other just pays half of the the monthly mortgage payment, plus the other incidentals (taxes, insurance, etc.), what do we have to do so that each benefits equally on the tax break from the mortgage interest? It's only fair for the one who did not make the mortgage loan to also benefit from the tax break since he/she is
paying half of it.
We'd appreciate any valid advice from anyone. Thank you very much.
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I don't think there's any chance that you'll find lenders who will give each of you a $90K loan. What would the loan collateral be - half a house? However, there's no reason you can't get a loan together, that is, get a $180K mortgage with both of you shown on the loan. If your combined incomes are sufficient, and your credit is ok, that shouldn't be a problem. And with both of you obligated to pay, you can then both deduct interest, real estate taxes, etc. If only ONE of you gets the mortgage, then only that person gets the tax breaks. Of course, there's no reason that you can't work something out between you - say you get the mortgage and take the tax breaks, and you give your girlfriend (who's paying half the expenses) half the homeowner-related tax savings.

All of this presumes that you and your girlfriend remain on good terms! I'm not trying to put a curse on you or anything, but I have read time and again about headaches involving joint purchases, when the two individuals break up or otherwise decide to go their separate ways. Who gets the house? What if she wants to sell and you don't, but you can't afford to buy her out? It's probably worth talking about those things in advance...
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Of course, there's no reason that you can't work something out between you - say you get the mortgage and take the tax breaks, and you give your girlfriend (who's paying half the expenses) half the homeowner-related tax savings.

If one of you does not have enough deductions to itemize without the mortgage interest and property taxes, this is an excellent idea. By splitting the deductions 50/50, you are losing the benefit of the standard deduction on both returns. With one standard deduction and one itemizing, your combined deductions will be larger, and your combined taxes lower.

--Peter
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Be aware that if you live in certain states and fall under community property rules you may not be able to have one partner take all the deductions. They may have to be equally split thus negating some tax advantages. Good luck!
Buz
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Buz,

We were discussing two unmarried people. In the case of married filing separate, both must itemize (even if the itemized deductions on one of the returns are less than the standard deduction) or both must take the standard deduction. So the suggestion I made is completely inapplicable to married couples.

--Peter
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You need to watch out with the games you want to play. It can be structured to achieve what you want.

With mortgage interest-- The rule is you must be liable for the debt and you make the payment to get the deduction. If the payment comes from a joint checking account the IRS will take the position that it is 50/50 and you have to prove otherwise. So the way around this is to make the house payments from your own account. Let her buy the food or other nondeductible expenses out of her own account to fair.

Property taxes only require that the you be liable for the taxes and the taxes are paid, so it is possible to get a deduction for property taxes paid by someone else, i.e you pay all of the taxes but your girlfriend still gets half the deduction because she is also liable for the taxes. So again if you pay from a joint account the IRS would split the deduction assuming both of you are liable for the tax. If you pay 100% of the taxes and IRS was arguing your comeback would be that you paid all of the taxes to protect your interest in home.

The rule is you can't give away deductions, so by setting it up right you can show you are entitled to the deductions and stop the IRS in their tracks.
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There is no such thing as community property for two unmarried people, even in california. The post by Paul had some excellent information.

Good luck
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