Regarding taxes, which are the PROS and CONS of buying our main residence under my wife name? (New Jersey State)

[Anonymous_]

Your question is far-reaching and involves infinitely more than federal and state income tax consequences.

Please seek local legal counsel and tax guidance from a professional in your area.

[mpalaciosg77]

The legal consequences, I know.

I am asking in this forum about the federal an state income tax consequences.

[rjs]

It's complicated. On your federal tax return it could affect your deductions for real estate tax and mortgage interest. On your New Jersey tax return it could affect your Property Tax Deduction or Credit. It could also affect your New Jersey Homestead Benefit. If you or your wife are 65 or older it could also affect your Property Tax Reimbursement (PTR or "Senior Freeze"). The Homestead Benefit and Property Tax Reimbursement are not on your tax return, but they could affect the deduction for real estate tax on your federal tax return. And it could significantly affect how much federal and state tax you have to pay when you eventually sell the home. There are many other factors involved besides whose name is on the deed. Consult a local tax professional in New Jersey.

[TomD8]

I agree with @rjs .  But I can tell you that, with regard only to federal income tax, you should be aware that only the property owner can deduct mortgage interest and property taxes.  If you and your wife file a joint return, that's not an issue.  But it would be an issue if only one of you were the owner and you filed separate returns.

I also recommend you consult an estate-planning attorney.  There are estate-planning issues to consider when deciding on the form of ownership of what may be your most valuable asset.

[Opus 17]

For federal income tax purposes, both spouses are considered to own the home, even if the home is only in the name of one spouse.  That means that if you file separately ("married filing separately"), either spouse can deduct the mortgage interest and property taxes, even if only one spouse paid them.  And on a joint return, of course, it matters even less, since you are basically "one taxpayer."

The name on the deed also does not matter when it comes to selling the home.  Both spouses qualify to use the capital gains exclusion, as long as they both lived in the home, even if only one spouse was listed as owner on the deed.  And if there are capital gains after the exclusion, and you file separately, they can be divided any way you like.

I can't tell you anything about New Jersey state income taxes or any other implications of listing the ownership in a specific way.

[rjs]

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@Opus 17 wrote:

The name on the deed also does not matter when it comes to selling the home.

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@mpalaciosg77  What Opus 17 said is true, provided that you are both still alive, still married to each other, and still both living in the home. It might be many years before you sell. Things can change, and unexpected things can happen. There are a lot of detailed rules about the exclusion of gain from selling a home. You have to consider possible future tax consequences, not just the tax consequences this year. Consult a local tax professional.

[TomD8]

@Opus 17 wrote: 

"That means that if you file separately ("married filing separately"), either spouse can deduct the mortgage interest and property taxes, even if only one spouse paid them."

However, the IRS says:  "However, if only one of you is eligible for a deduction for an expense (for example, real estate taxes on a property owned only by the eligible spouse), only the spouse who is eligible for the deduction is allowed to claim it, even if the expense is paid from joint funds."

https://www.irs.gov/faqs/itemized-deductions-standard-deduction/other-deduction-questions/other-dedu...

Of course, all this is a non-issue if the couple files a joint return.

[Opus 17]

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@TomD8 wrote:

@Opus 17 wrote: 

"That means that if you file separately ("married filing separately"), either spouse can deduct the mortgage interest and property taxes, even if only one spouse paid them."

However, the IRS says:  "However, if only one of you is eligible for a deduction for an expense (for example, real estate taxes on a property owned only by the eligible spouse), only the spouse who is eligible for the deduction is allowed to claim it, even if the expense is paid from joint funds."

https://www.irs.gov/faqs/itemized-deductions-standard-deduction/other-deduction-questions/other-dedu...

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I know, but there are so many other cases where marriage "imparts" ownership of a house to the other spouse, that I think that is a bad example on the part of the IRS.  Or it is at least unclear to me.  And especially if the home is purchased during the marriage, rather than brought into the marriage.  

[rjs]

@TomD8 @Opus 17 

Someone who lives in the house and assumes the "burdens of ownership" would probably be considered an equitable owner or beneficial owner, even if he is not the legal owner. An equitable owner can deduct mortgage interest and real estate tax if he paid them.

26 CFR 1.163-1(b)
" Interest paid by the taxpayer on a mortgage upon real estate of which he is the legal or equitable owner, . . ."

There is also case law on this.

As I said in my first reply above, "It's complicated."

(Thanks to DoninGA for pointing out the CFR reference a few years ago.)