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There are a number of advantages in owning a home jointly with another person or other people. However, it can also create some challenges when the time comes to file for taxes. You should, therefore, have some handy tax tips for joint home ownership that will help you to deal with the challenging situation without straining pockets and relationships.
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Types of Joint Home Ownership
You should understand the different types of joint home ownership so that you know where you stand. The most common type is Tenancy in Common, where each owner has some undivided interest in the property. The owners do not necessarily need to have equal shares in the property; neither do they have to be relatives. Any co-owner can do what he or she likes with the owned portion. Of course, separate arrangements can be drawn to give protections against this contingency.
Another type of joint home ownership is known as Joint Tenancy with Right of Survivorship, which suits family members better, as every co-owner has full ownership of the property. This type of joint ownership makes the administration of the property relatively easier. The remaining person owns the estate upon the death of the co-owner with no need of a probate, as the deceased co-owner's name can be removed from the deed. However, it also has its drawbacks; hence the advice of a qualified legal expert is necessary when drawing up the contract.
Tenancy by the Entirety, on the other hand, involves married couples only and applies just to their state residence. Real Estate Cooperative is another type of joint home ownership.
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Tax Tips for Joint Home Ownership
When you own a home in common with another person, the tax payable will depend on a number of factors; including how you hold title to the property, how you file your taxes, and whether you use the property as your primary residence.
Usually under Tenancy in Common, all co-owners are responsible for paying percentages of the real estate taxes proportionate to their share in the property. This means that when it comes to tax deductions, every person will only be entitled to a proportionate percentage of the tax even if they were the ones who paid the whole tax.
It is advisable to go to your local taxing authority in order to determine the one who is liable for the home tax.
Under Joint Tenancy with Right of Survivorship, the person who actually pays the tax will be entitled to get the deductions because the owners have equal liability. However, you need to provide proof that your funds were used to pay the taxes. If you file for your taxes separately, then you will need to make the deductions separately, depending on who paid what.
Another useful tax tip for joint home ownership is to let one owner be responsible for the taxes while the co-owner takes care of other bills associated with the property.
- University of Florida IFAS Extension: http://edis.ifas.ufl.edu/fy446
- Trust Basics: An Introduction to the Products and Services of the Trust Industry by Monty P. Gregor, 2003, (page 6).
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