Buying a Home With a Partner Who is Not Your Spouse
By Teresa Ambord
It used to be that when two people bought a home together, they were a married couple. But these days, some unmarried couples, as well as pairs of siblings and friends are delving into the real estate market to take advantage of the benefits. And the benefits are many… tax breaks, ownership, security, equity. But before you jump into that deal, make sure you get the wording on the home’s title correct, or you may find yourself owning nothing at all.
Here are some points to consider:
- If you buy a home with someone who is not your spouse, who gets the tax deduction for mortgage interest?
- Unmarried people cannot file a joint tax return. But you can still share the mortgage interest deduction even if your name is not on the mortgage, provided of course, there is agreement. IRS Publication 936 states that you can claim your share of the tax deduction in the same way as if your name was on the 1098 (the lender’s statement of mortgage interest paid). Just write on the adjacent line of your tax return “see attached” and include a copy of the 1098.
- Tax experts advise that if you share expenses for the home, you should write separate checks for your respective shares, and keep a journal including check numbers, and if possible, cancelled checks. It’s important to be able to prove your contribution in the event of IRS questions or other legal challenges.
- If you died, who would you want to own your share of the home? This is especially important for unmarried couples who have children together. Presumably, you would want your family to remain in the home for as long as they wished. But unless you purchase the house as “joint tenants” that may not happen, regardless of your intentions.
Joint tenancy refers to co-ownership of a home by two (or more) people who live together. And joint tenancy includes the right of survivorship. So if one partner dies, his or her interest passes to the surviving partner. Without this right of survivorship, the deceased partner’s interest is distributed according to his or her will, or, if there is no will, according to inheritance law. Imagine how difficult life could be for your surviving partner and your children if suddenly, someone else owned half of the home.
Other benefits of buying a home as joint tenants:
- Joint tenancy makes both of you financially responsible. If your relationship tanks, neither of you can walk away unscathed, leaving the other to pay the entire mortgage.
- Joint tenancy creates a balance of power by making both of you owners.
- It also allows both of you to develop equity which may be needed to pay emergency expenses, finance an education, or fund your retirement.
What other types of ownership are there?
- Tenancy by entirety: Married people who purchase a home together are tenants by entirety, with the right of survivorship.
- Tenancy in common: This is when two unmarried people co-own a home, but without the right of survivorship. So, if one partner should die, his or her interest is distributed according to a legal will, or, absent a will, by inheritance law. This might make sense for two friends who buy a home together and want their share to be retained by their own families, rather than being handed over to the co-owner.
Whoever your co-owner is, it’s a good idea to also create a property agreement that spells out how assets are owned (as in 50/50) and how expenses are shared (50/50?)
If you don’t have a property agreement and the relationship ends, you may be in for an expensive fight when you can’t agree on how to split the assets and debts. While your relationship is healthy, take the simple precaution. Talk it over, put it in writing, sign it, date it, and ensure that each of you has a copy.
Important points to remember:
- A property agreement does not replace a designation as joint tenants.
- If you are planning your estate, ask an attorney before entering into a joint tenancy.
