How to properly repay a friend for living in her apartment (it's her lease -- we're friends so there's no sublease). She's paying a monthly lease -- I'm simply trying to repay her 100% of her lease expenses.

[212andrew]

In 2021, my friend and I both lived in New York.  Then she got a job and moved to California.  She had recently resigned her New York lease, and mine was ending, so I moved into her apartment and essentially agreed to take over the lease (which is still in her name).

Rent is $2,800 (I'm currently registered with the landlord as a roommate).  She pays that $2,800 to her landlord every month -- and I've simply been sending her $2,800 via Zelle to repay her as I live in the space and essentially "keep" the apartment for her. 

Is this permissible from a tax perspective?  I'm simply reimbursing a friend.  Neither she nor I are profiting (or taking losses) on this at all -- we're both just trying to help each other out (I hold onto her apartment for her and live in it, while repaying her for her expenses of carrying it).

Does she or I somehow have to file or give a tax form to each other because of this agreement and the value ($2,800 * 12 = $33,600/year)?  I hope not, but figure it's worth asking.  If there is a tax issue here (again, I'm merely repaying her for her costs), is there a way to structure this repayment to avoid the tax issue?  I've been using Zelle, but could use checks, cash, etc.

Would it be different if I paid her landlord directly from my own bank account (rather than reimbursing my friend) and/or tried to get my name added to the lease (I'm not sure my friend would be open to this, but perhaps it would solve a potential tax issue)?

Those are my main questions.  On a side note, I've also wondered: Regarding the tax deductibility for something like home-office expense, would I be able to claim that (she's no planning to as she is doing that with her apartment in California)?  After all, I am paying $33,600 in housing costs -- can I use that for my home-office expense (even though I'm paying her) so long as she does not claim it (which she won't, as she's using her California lease for her home office expense).

Any and all insight would be appreciated -- thank you!

[ThomasM125]

Your friend should report the rent you pay her as rent income and deduct the rent she pays as rent expense. Even though the two amounts cancel each other out so that there is no taxable income, that would be the correct way to handle it from a tax perspective. You don't need to issue any tax documents reporting the rent since it is not a commercial transaction.

The tax treatment would be the same no matter how the rent is paid, it just may attract less attention by the IRS if you made the payment directly to the landlord. If your name was added to the lease that would mean you were renting from the landlord, so that would mean your friend wouldn't have to worry about reporting the rent on her tax return.

To deduct home office expenses, you would need to be self-employed, as the home office deduction is not available for salary employees. You could do that if you were self-employed and used the office space exclusively for business purposes and you didn't have an office elsewhere you used for the business. The home office would have to be necessary for business purposes. 

[212andrew]

Thanks very much for your insightful and knowledgeable reply.  I appreciate it, and will use this valuable information going forward.