unmarried couple mortgage interest

[joanmcq]

New clients filing back taxes. Both are on mortgage, both are on deed. Only account is a joint bank account. Previously, they prepared their own taxes and one took all the interest and taxes and the other claimed the standard deduction. With the two only having one joint account, I think the best I can do is split the deductions by percentages of income. What say y'all? Currently, the returns are pretty simple, but in 2007 they bought a new house and the old one will be rented in 2008, so I will have the same issues on the rental property.

[lbbwest]

"Only account is a joint bank account." The correct answer is as always, it depends. IF both individuals put all of their income in the joint account; allocating mortgage interest by percentage of total income is fine. In real life that rarely happens. If standard deduction for both doesn't create a larger deduction then technically the taxpayer should only deduct the interest he or she paid. It's mind boggling how many "couples" have arrangements such as he pays the mortgage and I pay the utilities etc. Tax law is indeed baffling. lbb

[Slappy Tax]

I've had this come up and have actually called the IRS for guidance. I know that what the IRS reps tell you by phone isn't citable, binding, or even necessarily correct, but for better or worse, this is the way it was explained to me. If the funds used to pay a mortgage come from a joint account and both taxpayers have contributed to that account, as far as the IRS is concerned the taxpayers can allocate the mortgage interest deduction however they wish, including for either one of them to take the entire deduction. The IRS rep said that the IRS will not endeavor to segregate the payments and allocate the deduction between the two joint account holders.

If this gets anyone in trouble, just cite Slappy Tax Post 20080102, ATX Forum (2008). I think there might be some precedents among Judge Judy's cases also.

[joanmcq]

Actually this is really that all the income goes into the joint account and one used to pay all the bills (write the checks out of the joint account) until computerized bill pay came along, and now the other one does it because its more like surfing the internet than paying bills. I've actually advised unmarried couples that if they want to technically be right, the one that wants to deduct (higher income) should pay mortgage, and the other one pay the auto payments and utilities or whatever. But these folks really just pool everything. the incomes were more disparate a few years ago (I'm working on 2004-2007) but are about equal now.

they have a second account for the soon to be rental, and all bills for that home renovation are coming out of there.