My wife and I and our adult daughter together bought a house this year. Our daughter lives there. The ownership is joint tenancy for the three of us. All three of us are also co-borrowers on the mortgage. We - the parents - actually make the mortgage payments; our daughter pays us a monthly amount in an informal "rent-to-own" arrangement.
We are also spending $ this year to make substantial improvements to the home, including energy efficiency upgrades that will be eligible for tax credits.
My wife and I file jointly, with AGI ~$80K. Our daughter is single, files an individual return, with AGI ~$40K. In recent years, it has been advantageous to take the standard deduction on both returns, but that might be different with this purchase. How would you advise handling the house purchase, mortgage interest and energy upgrade costs on our tax returns (parents' and daughter's)?
Thank you in advance!
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Hi, @Greyrock, congrats on the purchase of the new home!
Keep in mind that the purchase of a home is generally not a "taxable event", so that purchase and most of the upgrades are not going to affect this year. However, both the purchase price of the home, as well as the cost of any improvements, contribute to your "basis" in the home. This may be important if you ever sell the home, as that basis will be used to determine the amount of any gain or loss you have on the sale.
The one exception to this is the cost of the energy-efficient upgrades which, as you said, may qualify you for a credit on this year's return. However, you might want to review this article, since the fact that this is not your primary home could be a factor if you installed fuel-cell equipment. Energy Tax Credit: Which Home Improvements Qualify? The credit can be split if your daughter paid for any of the expenses; otherwise, the credit is yours.
As to standard versus itemized deductions, the standard deductions for Tax Year 2022 are $25,900 for joint filers and $12,950 for single filers. To determine which is most beneficial, it is simply a matter of adding up your potential itemized deductions, including your shares (again, how much each of you actually paid) of mortgage interest and property taxes, to see if these amounts would be exceeded. The good news is that TurboTax makes this easy for you and will make the calculations for you based on the information you input.
Hope this helps!
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