Splitting Mortgage & Maintenance Expenses With A Family Member

[ta_nyc]

Hello -

I currently own an apartment in NYC. The mortgage is in my name. The apartment belongs to me. My mother lives with me. My mom and I split the cost of the mortgage and the maintenance. We split living expenses. Do I need to report this to the IRS? Do I need to include this information when I file my taxes?

[KrisD15]

No, you are simply two members of the same household. 

Nothing you mention would be reported on a tax return.

I would point out that the portion of the mortgage and/or property tax that your mother pays cannot be claimed by you as an Itemized Deduction. 

If you do Itemize deductions, you might want to rearrange payments between you and your mother so you can claim the full amount. 

[ta_nyc]

Thank you so much KrisD15 for your response to my tax question. I have a few follow up questions.

You mention the following:

"I would point out that the portion of the mortgage and/or property tax that your mother pays cannot be claimed by you as an Itemized Deduction. 

If you do Itemize deductions, you might want to rearrange payments between you and your mother so you can claim the full amount. "

My monthly mortgage is about $600, My maintenance is about $1,000 per month. Total $1,600

My mother contributes $700 per month. Her contributions are also used for shared household purchases such as homeowner's insurance, internet, groceries, and household purchases such kitchen appliances, etc. How should I apply the $700 or rearrange the payments between my mother and I so that I can claim the full amount under itemized deductions?

Thank you.

[JulieS]

In order to claim the full mortgage interest deduction, you would need to pay the entire mortgage payment and property taxes yourself. 

You could split all other shared expenses. If the other shared expenses total at least $1400 per month, you don't nee to make any changes. 

If they don't total at least $1400, you could either reduce the amount your mother pays, or draw up an informal agreement saying her share is applied only to the other shared expenses. 

[ta_nyc]

Thank you JulieS.

What you have outlined only applies if I am itemizing my deductions. As a NYC resident what is the alternative to itemized deductions? When is it best to take itemized deductions versus the alternative option?

Thank you.

[JulieS]

Yes, this only applies to taking itemized deductions. For your state and federal returns, you can choose either a standard deduction based on your filing status, or itemized deductions. 

It is only worth itemizing if  your total itemized deductions are more than your standard deduction.

The standard deduction for federal returns:

• Single is $12,950, 
• Married filing jointly is $25,900
• Head of household is $19,400

The standard deduction for New York returns:

• Single is $8,000 
• Married filing jointly is $16,050

You'll notice the federal standard deduction is higher than the New York standard deduction. You are allowed to itemize in New York, even if you take the standard deduction on your federal return. 

[ta_nyc]

I want to make sure I understand the limits for standard deduction. I am allowed to take the following standard deductions:

1. Federal Level = $12,950

2. State Level = $8,000

Total Standard Deduction = $20,950

If my itemized deductions are less than $20,950 than I should not itemized and take the standard deduction of $20,950?

Am I understanding this correctly?

Thank you.

[KrisD15]

No, the standard deductions for State and Federal are not added together.

They are separate returns. 

If your Itemized Deductions are less than 12,950, take the Standard Deduction on your Federal Return. 

The same is true for your state return (if less than 8,000), depending on the state you must file. Some states adjust for itemized deductions you claim on the Federal return. Some states let you change your deduction method from that which you used on your Federal return, other states have you use the same method on State as on Federal. 

[ta_nyc]

I think I understand now. Thank you so much!

[ta_nyc]

More to add to this scenario:

My mother will be living with me. Her sole source of income is Social Security Income. She and I will split living expenses. Monthly expenses are about $1,600 (mortgage and maintenance). My mom will provide $700 per month.

1. I do not need to report this as income as we are sharing living expenses. However, I cannot fully claim mortgage payments and property taxes.

2. Can I consider the $700 per month payment as a gift. Is this allowed?

Thank you

[KrisD15]

Yes, it can be considered as a gift if that is agreed on. 700 a month is well below the annual limit on unreported gifts. 

Also the 700 per month needn't be considered as part of the mortgage payments nor part of the property tax payment unless you want it to be and/or your mother directly makes those payments. 

Additionally, you and your mother can agree on a 700 contribution without it being considered as rent or as mortgage or tax payments. 

I'm sure that there are utilities and food expenses. 

How you handle your mother's contributions to the household is really up to you and you mother. 

[ta_nyc]

Thank you so much!

[ta_nyc]

Hello -

I wanted to discuss another option for this scenario.

So far my options for managing the $700 received from my mother for living expenses can be handled as such:

1.  $700 is allocated to shared living expenses so does not need to be reported to the IRS. $700 cannot be applied to mortgage and maintenance (includes property taxes) payments in order to take full deductions on these items on tax return.

2. I can consider the $700 per month contribution as a gift. No need to report to IRS.

3. Can I consider the $700 monthly contribution as rental income? If I were to rent out my apartment, typically rent for my unit is priced at $1,900 a month. Could I consider the $700 monthly contribution as rental income and report as a loss on my tax return because I am receiving below market price? In this scenario, how do to I determine when activity has resulted in a loss? I believe there is a Form 8582 (Passive Activity Loss Limitations) where this sort of activity can be reported. Can you tell me more about this form? Who should complete this and when is this relevant?

Look forward to hearing from you.

[DMarkM1]

No, you would not be able to take a loss.  Your rent charge is below fair market.  You could claim the income as rental income and deduct expenses up to the rental income amount but no losses.  Bottom line options 1 and 2 net the same zero on your taxes and much less paperwork on your part.   

[ta_nyc]

Thank you. What is Form 8582 (Passive Activity Loss Limitations)? Who does it apply to? When is this form required?