Now that tax season is soon dawning upon us, I was hoping to get some insight on the best way to file my taxes being that my friend and I both own the property and are filing as separate individuals.
In terms of the mortgage interest, property management write-offs, misc. expense writeoffs, how do we file it? Someone told me I should go ahead and split all the costs in half, he would file half of the expenses on his return, and I on my return.
E.g. If mortgage interest was $500 from last year, he would do $250 on his return and I $250 on mine.
Let me know if that is correct.
Is the property owned as tenants in common?
Is there a Tenants in Common agreement?
I'm not sure I don't think so. We merely purchased the property together. So we signed all documents at closing with both our signatures.
Look at your deed. Not sure about your state, and I'm not an attorney, but in most (possibly all?) states when two unmarried people purchase property together, title defaults to tenancy in common (TIC). In this case hopefully you would have memorialized the economic arrangement between yourself and your partner with a TIC agreement.
When multiple taxpayers each have a TIC interest in a property, each reports on their respective tax returns their pro rata (i.e., proportionate) share of the property's revenue and expenses depending on their percentage ownership of the property.
If your economic arrangement between yourself and your partner is more complicated than the mere sharing of revenue and expenses based on your interest in the property such that your shared activities rise to the level of engaging in business together, then you may have a partnership for income tax purposes and would be required to file Form 1065 and related state filings, if applicable.
Among other things, maintaining proper property books and records is essential to maintaining TIC status before the IRS.
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