Help On A Tax Issue....Please

klink | Feb 4, 2014 | 202 posts since 2012

Folks....I am trying to find a source that would provide an answer or someone here who can figure and answer for me. Situation:

Homeowners A&B split the mortgage payments and property taxes paid yearly. B wishes to file a short form leaving A to do the long thus claiming all the major deductions. B would like their entitlement to the portion of property tax they paid (1/2) and A would like to give it to them. A wants to know how to figure out how much they are entitled to?

Answers, directions anything would be of help. Thanks

Edit: The return is going to be filed and done by a tax preparer who does not determine this type of info.

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Answers

paoli2 | Feb 4, 2014 | 2,641 posts since 2011

Klink: If your tax preparer doesn't do this type of taxation, I would find someone who is an Enrolled Agent. They are tax preparers who have to keep up with their studies annually and are the best in the field for taxes. I have a relative who was one until he retired last year and I can't imagine any type of taxes he could not do. If he didn't know the answer, he knew where to go to get it. That is the type of preparer you need. You did not say if the A and B were married so I gather they can't do Married Filing Seperately and each one take the share they are due. Would not what they (B) are entitled to be exactly what they paid? Problem here that I see is having the proper records to show government (if audited) who really paid the taxes and why someone else is disclaiming their share as a deduction. We just can't give our deductions over to someone else to claim unless we have proper documentation and we find out if this is allowed or not. That's where your Enrolled Agent tax preparer would come in handy for you.

Ally6770 | Feb 4, 2014 | 4,290 posts since 2010

The post says homeowner so I would assume both are on the mtg. I would assume that the situation probably is 2 people living in and both owning the home but one person would come out better than the other by taking the deduction. Just have the paperwork to prove what you are deducting. This is most likely not your situation but it might apply.

If each spouse's name is on the mortgage and they each pay half the interest, they'll each get 50% of the mortgage interest deduction on their separate return. In this event, there may not be much difference in their total tax liability than if they had filed jointly.However, if only one spouse's name is on the mortgage, the 50% reduction can be brutal. Faina Bronstein found this out the hard way. In 2007, she and her father-in-law purchased a home in Brooklyn together for $1,300,000. They jointly took out a $1 million mortgage. Faina lived in the home full-time with her husband and she paid the entire $50,000 interest on the mortgage herself.Faina and her husband filed their 2007 taxes separately. On her separate return, she claimed the full $50,000 interest deduction for the home. Her husband took no mortgage interest deduction at all on his separate return.Faina may not have followed the exact letter of the law, but she and her husband did not try to take a double mortgage interest deduction. Faina deducted no more than she could have if she and her husband had filed jointly.

Unfortunately, the IRS and Tax Court didn't see things Faina's way. They ruled that the tax law had to be read literally and the 50% reduction applied in her case. As a result, she was limited to deducting interest on $500,000 of her mortgage debt. Her husband got no deduction at all because his name wasn't on the mortgage and he didn't pay any of the interest.Had Faina stayed unmarried, she could have deducted her $50,000 interest on the whole $1 million mortgage. The 50% reduction in the mortgage interest deduction applies only to married people who choose to file separately, not singles who must file that way.

paoli2 | Feb 5, 2014 | 2,641 posts since 2011

klink: First, do you know that the Standard Deduction for 2013 for filing Single is $6,100.00 unless you are in a certain age category. If it were me, I would quickly do "my" taxes with my deductions and then have B do his using his half that he contributed ($1,000.00) with his deductions and see what refund B gets using his half as a deduction. He would have to have over $6,100.00 in deductions to make it worthwhile to itemize. Then, I would quickly do my taxes as (A) and see what refund I get using full $2,000.00 and then using $1,000.00. Whatever the difference comes to be I might give half of that to B in return for letting me take the full $2,000.00. But this isn't a simple matter because your refund will be due to how much other amounts you can deduct which B may not have for his tax form. Doing it both ways would at least allow you to see how much more having the full $2,000.00 to use ups your refund. It may not be by that much.

B could also do his taxes with and without using the $1,000.00 which was his half and see how much it increases his refund. If it is not going to increase his refund, you both are going to a lot of trouble for nothing. This way tho, B might understand you don't really owe him anything since it isn't going to help him tax wise unless he can get a bigger refund from it. You both also could be opening up a can of worms to explain to the IRS if they ever audit your taxes and want to see proof for the property tax amount. Seems to me, "A" is the one holding all the proof that he paid the taxes and B's portion may be disallowed by the tax people for lack of proof he paid anything unless B has written proof for his half.

Unless your taxes are more complicated than this, it might behoove B to do his twice with and without the $1,000.00 deduction and see if it is worth the problems it may bring him. If he is not going to use it for a tax deduction, and you just want the amount "to be fair" using the amount in the difference between his two tax examples could be the way to go.

lou | Feb 4, 2014 | 1,004 posts since 2010

Are both A & B on the mortgage?

klink | Feb 5, 2014 | 202 posts since 2012

Hey folks....thanks so much for the replies. I should have provided more info at the start. My apologies. Ally's first paragraph pretty much sums up the situation. I should have stated that the issue does not involve mtg. interest or anything else mtg. related. Just the property tax is at issue as we don't escrow this or insurance with mtg payments. ( Did this when we did a re-fi at better rates so as not to let the mtg. holder bankroll my property tax and insurance monies making themselves interest for a year.) Back to A&B. B doing the short form wrote A a ck. for their portion of the property tax. Ck was deposited in A's property tax expense acct. and when due was paid by ck from A to the local tax office. All signed sealed and nice. Now when A files the long form with all the rest of just A's stuff to include mtg interest etc etc and gets his return how does he figure what percent or amount of his return would be appropriate to repay B their share of "Property Tax"?
Edit 1: Though A&B are on the mtg., A is the responsible individual as A makes the more money when the re-fi was done. A also gets the tax bill in his name thus is paid out of A's funds. A&B are not married and B has no wish to get anything else other than a fair amount for their portion of the property tax.
Edit 2: I guess what I'm trying to do is ask...when you get a refund, how much of that can be associated with the property tax amt. paid? If A paid $2000 in property tax of which B contributed half and A after all the rest of what's necessary got his return, how would he determine a fair amount to give to B?

klink | Feb 14, 2014 | 202 posts since 2012

Hey folks, Thanks for all your in-put regarding this matter. Seems like it didn't make any difference as I couldn't qualify expenses wise for a significant improvement in my return.

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