<p>I’m in the process of house hunting with my longtime girlfriend. We’re trying to figure out the best way, both legally and tax-wise, to actually take title and determine ownership. Right now she’s a professional engineer, and is making enough money to be able to make the PITI payments on her own. I’m finishing up my PhD in about six months, so currently I’m not bringing in a whole lot of money, but I have a job offer that should put me at parity with her.</p>
<p>Our biggest question, at the moment, is what sort of restrictions there are on claiming deductions on stuff for the home if we go with joint tenancy or setting up a trust. Would one of us be able to claim the entirety of the deductions while the other just goes with a standard deduction?</p>
<p>As a note, we’re unmarried and living in California (if those things matter).</p>
<p>What you probably want is joint tenancy with right of survivorship. That is a form of title where if one of you dies, the other automatically owns the full interest without going through probate or anything like that, and neither of you can sell or mortgage your interest independently of the other. Note, however, that your deal if one of you dies may not be that the other gets the whole house without paying for it. You may not want to be the primary beneficiaries of each other’s estate.</p>
<p>From a tax standpoint, joint tenancy gives each of you the ability to deduct your share of the mortgage interest and property taxes (watch out for the AMT, though, especially in a high-tax state like California). You have some flexibility in determining what “your share” is, but generally the deduction ought to follow the source of the cash to make the payments.</p>
<p>I encourage both of you to talk to a lawyer and enter into some kind of simple agreement before buying a house together, especially if your incomes are unequal now, and you expect things to change in the future. If you do break up, it will be far easier if it is clear what happens to the house, and to any proceeds from selling it, and whether either of you has the right to buy the other out and on what terms. That agreement can also address who pays interest, taxes, maintenance, and capital improvements, etc., and how the tax consequences of those things are allocated.</p>
<p>Thanks for the confirmation on joint tenancy with survivorship, that was the one we had been leaning towards so far.</p>
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<p>This was the one thing we were hoping there might be a way around. With how low interest rates are at the moment by splitting the house deductions 50/50 we’d both only be getting a little over the standard deduction. If we could have one of us do the interest then we’d be much better off tax-wise. Our other thought would be one of us would pay 100% on the house and the other would “gift” their portion to the other (it should be under the $13k limit). That seems a little sketchy, though.</p>
<p>I’m going to disagree with JHS, and opine that until you are legally tied together in some way (a.k.a. marriage), you should be tenants in common. </p>
<p>Your relationship is good now, but who knows what the future will bring. When/if you get married you can change it to a joint tenancy at that point.</p>
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IANAL, but I believe that in a joint tenancy with right of survivorship, ownership passed to the surviving tenant regardless of a will or other agreement of the decedent.</p>
<p>And I have to take notrichenough’s advice one more step. Unless you are legally tied in some way (aka marriage), only one of you should be on the deed. In your case, that would be your girlfriend. When marriages dissolve, there is a well-established process for dividing property (aka divorce). When non-marital relationships dissolve, there isn’t, and it can get quite messy. You should also have a written contract that spells out who contributes what (if you don’t own the house, what expenses do you contribute; if you are both on the deed, how much do each of you contribute to the mortgage; etc.), and what happens in event that you split.</p>
<p>Disposing of real estate even if tenants in common is not simple; not all that many people will want to purchase a half-interest in a property.</p>
<p>Don’t use a TIC - if you break up, one of you could sell his/her interest to a stranger and whomever remains will be stuck with that person.</p>
<p>Assuming you are not inclined to get married before this purchase, you might want to consider having your girlfriend purchase the house in her name, and the two of you enter into a binding written agreement that specifies the rights and responsibilities of each of you.</p>
<p>Just to make clear what may have been an ambiguity in my advice: I raised the specter of what happens if one of you dies as a possible reason NOT to use joint tenancy with survivorship, for the very reasons notrichenough gives. </p>
<p>In general, however, I find with unmarried couples (which often includes very committed couples who can’t marry in a particular jurisdiction, because they lack the gender diversity still required in many states), jtw/ros best embodies the deal they want to have with one another. And their “cohabitation agreement” can provide for payments back to the estate of the deceased partner, if that is what they want, even though none are required as a real estate matter to vest title in the survivor. (Again, that has advantages and disadvantages. Talking face to face with a lawyer is better than pretending to talk to one online.) If you do want someone’s interest bought out if he or she dies, you may want to buy life insurance to make that possible. If you are depending on someone’s income to make mortgage payments, that may be another reason to set up an insurance program.</p>
<p>It’s true that non-divorce breakups can be messy, which is why I recommend an agreement. That’s not a guarantee against mess, but it should limit the amount of mess substantially. I recommend against tenancy-in-common because one t-i-c has a lot of ability to make life uncomfortable for the other t-i-c, unilaterally. It’s true that it’s hard to find a market-rate buyer or lender for a one-half t-i-c interest, but maybe not so hard if the buyer or lender is someone’s father or his business. I’m not sure I would want to share ownership of my house with my ex’s dad. With jtw/ros, both people are locked in, and you have to agree on how to get one person out.</p>
<p>If the issue is “can’t get married” (as it is for me), I’d go with JTROS. If the issue is “won’t get married,” my vote would be for renting or sole ownership. Owning real estate with someone is a big commitment with the potential for complex unwinding.</p>
<p>Who is providing the down payment? Are there any protections being put in place for that? If the GF is providing the down, then that needs protecting.</p>
<p>As of right now we’re splitting the down payment evenly. If needed, she could cover the entire down payment, but it’ll take out most of her savings. I’d probably cover closing costs, repairs, and furnishing costs in that case. We both live fairly frugally (total yearly payments on the house should be less than 28% of our individual incomes), so I’m sure she could bank savings back up fairly quickly.</p>
<p>We actually just got a confirmation e-mail from one of our mortgage brokers that she’d be able to qualify for the same loan on her own.</p>
<p>If she was the only person on the title, and I helped her pay the mortgage, would I then be paying rent, or gifting it to her, or what? Would I need to be on the title of the mortgage to take the interest deduction?</p>
<p>Both of us have seen very messy divorces in our lives, so we’re definitely going to have something set up to outline what’s going to be done in the event we split. </p>
<p>PS: Thanks for all the input so far, everyone!</p>
<p>Agree with bookworm - see a lawyer BEFORE you buy the house. A divorce lawyer. They can explain all the laws and upsides and downsides of all your options.</p>
<p>I also agree with bookworm. Work out the details, and put it in writing. Don’t act like certain things won’t happen, plan as if they will. If you share ownership, and break up, you need a clause that forces sale, unless you both agree otherwise. If one wants to stay in the home, he/she has to buy out the other’s share, within a set amount of time.</p>
<p>If only one of you owns, that person will claim the mortgage interest deduction. If joint ownership, interest will be reported as paid by whoever is listed first on the mortgage. If the other wants to deduct interest, you will need to work with the bank and the IRS, so they can validate the interest. But you have to be an owner, or otherwise responsible for making payments, to deduct the interest.</p>
<p>I don’t think it’s a good omen to see a divorce lawyer before you even get married.</p>
<p>Really, unless you are married, you ought to only have one person on the title. Things can get so complicated. I would personally figure out who it makes the most sense to own the house. Who wants the house more, would definitely stay there and not have a job transfer, who needs the tax break? It generally is rather clear cut. Let them pay the down payment (if they can), and the other person pay them a reasonable rent out of their salary. Then if you get married, most people mingle their finances anyways, so who cares where the down payment came from.</p>
<p>And actually, if you don’t know for sure that you plan on getting married…seems like a big mistake to even consider buying a house together. Not worth it, just to get the deduction. Ugh, I just talked to this nice young lady last week, on the title still, with her ex. He decided to stop paying the mortgage, her credit is ruined (it was excellent before), she can’t get him out of the house…declaring bankruptcy. So depressing.</p>
<p>I used a contract attorney. I believe if we had used someone as good as he was before I bought into his house, it would have been easier to extricate from the set up. The initial agreement was not tight enough.</p>
<p>My DW and I bought a house together before we got married. We went to see a lawyer to draw up some sort of agreement, and he made the point that such a contract is only as good as the integrity and good will of the people who make it. In other words, if things go bad, any agreement or contract is not going to provide a whole lot of relief if one or the other refuses to abide by it. </p>
<p>Sure, you can sue, and might win down the road after spending thousands on lawyers and years of your time, and maybe you can collect something or force an action.</p>
<p>Having one person own it is probably the cleanest, but I think it skews the relationship a bit. It gives one person more power.</p>
<p>The question that we asked ourselves before doing this was what we would want to do with the house if we did break up… In our case, my BF would still want to live in the house and could afford to do so easily, I’d want nothing to do with it-- I don’t need a house by myself. If I’d put money into it, though, I’d want some of that back and that would complicate matters as we’d then have to agree to sell and agree how to split the proceeds. In our case, the answer was for me to just not contribute any money-- it’s his mortgage and he’ll be paying for it, I’ll pay for other things to balance it out. For some this would create an imbalance of power, but I am okay with the house not being mine until we marry. I would never want that responsibility as a single person anyway and would not have done this any other way.</p>
<p>In our case, it’s convenient that we chose to purchase the house keeping only his income in mind. We did that so we’d have flexibility in my work options once we have children, but it also means that he can afford the house by himself were things to go wrong.</p>
<p>All of this would have been a moot point if we hadn’t planned to marry imminently anyway. I don’t see any good reason to buy a house before you’re ready to settle down. We did things in the “wrong” order because it made financial and logistical sense to us but we wouldn’t have done it if we didn’t know the other steps in the sequence, so to speak, would be happening pretty quickly anyway.</p>
You would be paying her rent. She would be taking the interest deduction with the IRS. You could have in your agreement (worked out before the purchase) that you would get some benefit from the deduction, like in a reduction in rent, or she would pay you an amount equal to your share of the deduction (an accountant could tell you how much that would be), or something similar. Remember too, though, that she would be fully responsible for the real estate taxes and property insurance - don’t forget to figure those into the calculations. Maybe she gets the full deduction and you don’t pay anything towards the taxes. There are all sorts of ways to work things like this out.</p>
<p>If you must buy it together, I agree with prior advice that it be joint tenancy with ROS. But you still need a written agreement beforehand.</p>
<p>Not sure if I said it upthread, but we’ve been together for over six years now, and sharing an apartment for three. Both of us have seen very messy divorces in our families, so we’ve been fairly diligent about keeping all of our assets separate in the past, and we definitely want some sort of thing outlined for the future if things ever do go wrong.</p>
<p>If I pay her rent would she be responsible for paying taxes on the rent as income? Also, would it seem reasonable (or possible) for us to put in our agreement that I should get some sort return for all the rent I paid her and/or the increase in the house’s value I helped subsidized?</p>
<p>The house will most likely go under her name since she’s from the area and has a great unionized job in the area. My family lives on the other side of the country, so I’d be likely to relocate elsewhere if I could get a job closer to them. That’s one of the other reasons we figured to have her be the one on the title/mortgage/whatever.</p>