How do I fill out 1098 as co-owner of mortgage?

[DN76]

Hi, planning on getting a mortgage with my girlfriend to buy an NYC condo. Firstly, even though both of us will be on the mortgage, can one of us claim the full itemized deduction for all the interest and property tax, even though both our names will be on the mortgage? I heard the IRS were starting to crack down on this. But I thought it was ok providing one person did actually pay the whole amount. Secondly, if we can't do that and have to split the deduction 50/50, how do we go about filling in the 1098?
For the section where we put the full loan amount do we just halve it since that's each of our shares and then put our share of the interest we're paying, or do we put the full amount and our share? For example if the full mortgage is 820K, do we put that and then our 50% share of the interest or do we put 410K as the amount and then our 50% share of the interest?

Thanks for any advice.

[Critter-3]

Ok... the general rule is that  the person paying the mortgage can deducted the interest they paid.  So just make sure that person is listed on the mortgage first so the 1098-T will be issued in that person's SS# and they can claim all the interest they paid  so there is no issue with the IRS.    

[Hal_Al]

Unmarried couples claiming mortgage interest.

You pretty much have a choice. One can claim it all or you can split it. It's usually best if only one claims it, allowing the other to use the standard deduction.

But, you do have to meet the rules, which are:

1. You are legally obligated to pay it
2. You actually pay it. Paying from a joint account where you made sufficient deposits to cover the payments will usually meet this standard. However. paying from your own account would be a stronger audit defense. 

[NCperson]

Be mindful that since the mortgage exceeds $750,000 not all the interest will be deductible if one person makes all the payments 

[DN76]

Ok and in terms of the audit, would it matter if you had payments coming in to your account from your girlfriend to cover their 50% share, so long as it was your personal account and you were the one paying it? 

[DN76]

Right. And if you split it 50/50 would you be able to claim all the interest even though the mortgage is over $750K?

how would you split it on the 1098? Would you list the full mortgage and your half share or half the mortgage and your half share since that’s the part that’s yours? 

[Hal_Al]

Q. Would it matter if you had payments coming in to your account from your girlfriend to cover their 50% share, so long as it was your personal account and you were the one paying it? 

A. Yes, it would matter.  You haven's really paid it.  You have to arrange your finances so that you pay it.  For a simplistic example, you pay the mortgage, they buy the groceries.

Q.  And if you split it 50/50 would you be able to claim all the interest even though the mortgage is over $750K?

A. No. You would claim half the limit.

Q. How would you split it on the 1098?

A. You can't split the 1098.  One of you would have to claim the deduction without a 1098.

Q. Would you list the full mortgage and your half share or half the mortgage and your half share since that’s the part that’s yours? 

A. Full mortgage, so that TT can apply the limit. 

[DN76]

A. Yes, it would matter.  You haven's really paid it.  You have to arrange your finances so that you pay it.  For a simplistic example, you pay the mortgage, they buy the groceries.

Q. Ok, firstly do you think the IRS would care so much so long as we’re both not claiming it? 

A. No. You would claim half the limit.

Q, Right but I’m talking about both of us together. There’s a limit of 750K on the mortgage. If we each claim 50/50 of the interest deduction will we get all the E interest back on our 810K mortgage or would it still be based on 750K? I thought the latter. 

A. You can't split the 1098.  One of you would have to claim the deduction without a 1098.

Q. Right, I mean how would we do it if we were splitting the deduction 50/50? Would we both fill in a 1098? And would we put half the mortgage value (410K) and half the interest? Or would we put the full mortgage amount (820K) and our half of the interest?

Thanks! 

[Hal_Al]

Q. Ok, firstly do you think the IRS would care so much so long as we’re both not claiming it? 

A.  You can only claim what YOU actually pay.

Q. Will we get all the E interest back on our 810K mortgage or would it still be based on 750K? I thought the latter. 

A. $750. Actually, half of $750, if you are each claiming half.

Q. Would we put half the mortgage value (410K) and half the interest? Or would we put the full mortgage amount (820K) and our half of the interest?

A. Half the interest, all the mortgage (TT needs to apply the limit).

[TomD8]

@DN76 --

You & your partner should each do this:

When you enter the 1098 into TurboTax, you'll come to a page that asks you to check a box if your name isn't on the 1098, or if it's listed second.  Check the box if it applies to you.

Enter the "outstanding mortgage principal" exactly as it's shown in Box 2 of the 1098.

Enter 50% of the interest (and property taxes, if they're shown on the 1098).

As you proceed through the questions, you'll come to a page titled "Explain the difference".

On that page, write a brief note stating that you're a 50% co-owner of the property, so you're only deducting 50% of the mortgage interest and property tax.  Include your co-owner's name and SSN in the note.

That's all there is to it.

My answer assumes that you're equal co-owners and that you each pay half the mortgage & property tax.

[Opus 17]

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@DN76 wrote:

Ok and in terms of the audit, would it matter if you had payments coming in to your account from your girlfriend to cover their 50% share, so long as it was your personal account and you were the one paying it? 

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You can claim a deduction for what you actually pay.  If audited, you need to prove this to the examiner, and we don't have any special insider information on what kind of proof the examiner would like to see. 

It would seem fair to me that if you pay the mortgage from a joint bank account that you each contribute to equally, the logical conclusion is that you each paid half the mortgage.  I don't think it should be necessary for you and your partner to each write separate checks each month for half the mortgage.  However, if you did write separate checks for half the mortgage, that would be even stronger proof than paying from a joint account that was jointly funded.  

(If your partner paid into your individual separate account and you paid the mortgage, that would be the weakest of the three situations, since you could be asked to prove that the partner was reimbursing you for the mortgage and not for food, travel or other expenses.)

Then as @TomD8 notes, only one SSN will be on the 1098.  That person enters the 1098 but claims half the mortgage. The other person checks the box for "I did not get a 1098" and claims the other half, and includes an explanation.