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I moved in with my romantic partner nine months ago. My partner owns 100% of the property and pay about $1000 per month to the mortgage (minimum is something like $300). Partner had no intention of renting any part of the property out, but we both wanted to move in together as our relationship progressed. We worked out an agreement where I pay $500/mo in "rent" to support my partner, as I didn't want to take advantage of the situation by staying free.

What should we be aware of in terms of the tax implications of such an arrangement? In particular, I am interested if this "rent" payment which is sort-of optional is taxable, and what our legal options are to not have this money I'm trying to support my partner with be docked 30% by the government - such as putting something in writing, or some form of co-ownership.

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    Have you considered creating a joint bank account, each of you paying money into that bank account, and then using the money in that account for expenses like the mortgage? Thats how a lot of people do it around here. Its clearly not rent, but more like paying together for expenses that you have together. I'm not sure if joint bank accounts are possible in the US, though. – Polygnome Jul 30 at 6:55
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    @Polygnome: since you are in Germany you may be in trouble when using a joint account to cover the mortgage (when there is one owner). This can be assimilated to donations between unrelated people - subject to taxes. – WoJ Jul 30 at 13:26
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    You are moving in with your romantic partner (single form) but you are using the words "they" and "them" for referral. Very confusing, what is it are you moving in with one romantic partner or several ? Might be relevant for a good answer. – thieupepijn Jul 30 at 13:55
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    @thieupepijn You're likely going to need to get used to the singular use of they/them pronouns both in instances of unknown gender or in the case of people who explicitly prefer non-gendered pronouns be used for them. English has used they/them in the unknown gender case for a long time, and we have simply expanded that use – Kevin Wells Jul 30 at 16:06
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    @thieupepijn en.wikipedia.org/wiki/Singular_they – MarsNebulaSoup Jul 31 at 14:51
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In theory, partner treats home as 1/2 rental unit. This creates a far more complex tax return, forces depreciation and expensing of half of all costs, including all utilities and maintenance costs. They must charge you a 'fair market' rate for rent or have that number considered imputed income.

In reality, I don't imagine that any significant number of couples do this. Just don't deduct the rent on your own tax return, if your state offers a deduction for rent.

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    Thank you for the answer. This cleared up another uncertainty of mine, which was whether to report it as rent when filing taxes. Taken with JohnFx's answer I can see that I should consider it just a gift and not necessarily report it. – Klaycon Jul 29 at 21:18
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    Keep in mind, you can easily consider the money as "chipping in for food, groceries, utilities, etc." If partner had a 4 bedroom house and rented 3 rooms out, I'd give far different advice, i.e. the 'income' needs to be claimed. I don't see it that way here. – JTP - Apologise to Monica Jul 29 at 21:24
  • Re "don't deduct the rent on your own tax return", since when is rent deductible on a (Federal) tax return? – jamesqf Jul 30 at 15:56
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    @jamesqf - pls read the entire sentence. Happy to edit if I wasn't clear. – JTP - Apologise to Monica Jul 30 at 15:57
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Assuming you are not married, the rent payment would be income to your partner which they would have to claim as such on their tax filings. It would also likely complicate their tax filings somewhat.

As to your concern with being "docked 30%" that doesn't make much sense. First, it won't be anywhere close to 30% unless they have a very high income. Secondly, 70% of $5000 is more than 0%. they would be better off. If you are concerned about that give them 30% more in rent.

If you just want to give them $500/month tax free, just do it as a gift and don't try to call it rent. As of 2020 you can gift up to $15,000/year tax free. After that you, as the giver* would potentially owe some tax on it if other exceptions didn't apply.

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  • For some reason I thought the tax-exempt limit for gifts was lower than it is ($15k on a cursory search). Thanks for pointing that out. And I totally agree that I should pay them more if I'm concerned about the payments being taxed, the wording was just to express the somewhat frustrating sense that my choice to not take advantage of my partner might actually cause some of the money to be taken out of the partnership - I acknowledge it's not exactly a reasonable concern. – Klaycon Jul 29 at 21:16
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    If you want to "take advantage" of me by sending me a ton of money and increasing my tax liability I wouldn't complain. In any event, the tax liability is on the giver, not the receiver. so bonus! – JohnFx Jul 29 at 21:18
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    If you're just paying the utility bills and buying groceries it's not even a gift. – Hart CO Jul 29 at 21:21
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    If it's over $15k, it's still highly unlikely that the giver will owe any sort of gift tax, unless they've already given the given $11 million or whatever the lifetime exclusion is (they would, however, have to file paperwork since anything over the $15k counts against that $11M) – PGnome Jul 30 at 4:53
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    I think a lot of people would value their partner having $500 over having $350 themselves. – Acccumulation Jul 30 at 20:16
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If your partner can take rental expenses, this can work rather nicely.

I'm not a tax accountant, so I'm not going to say definitively that this is allowed in a housemate situation. But it would definitely be if the property was a duplex.

The fractional rental, if legal, gives your partner advantages that others have not mentioned. These won't turn the mortgage into a profit center, but nearly.

Rental deductions

Your partner may have the opportunity to deduct a huge variety of home expenses that homeowners can't normally deduct. Or rather, half of those expenses.

Depreciation: This only applies to the value of the property improvements not the bare land, but in a rental property, 1 / 27.5 (about 3.6%) of the improvements' value is deductible every year. (or half of them in a half-rental).

Suppose improvement value is $150k, that depreciates $5454 per year or $454/month. Suppose another $150/month goes into repairs, so $600/month; she deducts half or $300. In a 30% bracket that provides $90 in tax refund.

Asset gains

While your partner may pay a $1000 mortgage, that is not the same as rent. Not all of that payment is interest; some of it is principal, and that pays down the note, increasing your partner's equity in the house. You both pay $500 toward the mortgage, but she (unlike you) gets $200 back in paper equity. Note that you cannot buy a hamburger with paper equity. So it nets out to only $300 in cost to your partner. With the afore-armwaved $90 in tax refund from depreciation and maintenance deductions, your partner's net cost to live there is a mere $210, down from $1000.

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  • tricky business! – Fattie Jul 30 at 12:21
  • Thanks for lining out how my partner is uniquely benefiting in asset gains. I read in other answers on this site that it was good to start with the usual price to rent in similar nearby homes, and $500 is in fact half of that! I figured it should be around the minimum I should contribute. But perhaps because it's really not rent and my intention is just to help out, this is not quite reasonable. – Klaycon Jul 30 at 14:07
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    @Klaycon I agree with your idea of simply "what you would pay to rent a share in a simliar house nearby". Really that's it. – Fattie Jul 30 at 14:32
  • Me too. I am not saying you are wrong, you asked what the benefits were and I am answering. – Harper - Reinstate Monica Jul 30 at 15:57
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    @Klaycon keep in mind that while theoretically your partner is making money, they are also taking on the risk of the price of the house crashing, experiencing a major repair, being unable to sell if they want to move, having most of their net wealth tied up in something illiquid that historically isn't a great ROI, etc. The cost of living in a house is a lot more than just the mortgage payment. If you're paying what you would to rent a similar place, then that does seem fair. Plus Harper didn't subtract what she'd pay in income tax, it could be a wash with the extra deductions. – Kat Jul 30 at 17:47
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My answer is a bit tangent to the question, but it may be interesting to you. YMMV.

Pay half of the EXPENSES

Payments towards a mortgage are not expenses, as each payment means that your partner has less debt left to pay, until he owns all the house with no debt.

To illustrate it, your partner probably could renegotiate the mortgage to pay $2000/month for less time, or $500/month for more time. Which would make your 50% apportation vary from $1000/month to $250/month for the same "service".

Shared ownership brings other issues:

  • Value the ownership percents while your partner has been paying for a longer time. Paying 50% of the mortgage for a few months should not entitle you to 50% ownership. And this percentage will change the longer you stay with him.

  • In the case of a breakup it complicates things considerably.

I think that a better solution would be paying for the value of having a place to live. How to evaluate it? The most usual answer is market value: check the price of rentals of similar houses at your area, and pay to your partner half of this price (plus your share of utilities).

If a breakup happens, both parts have contributed in a similar way.

Of course, this answer ignores the personal part of living as a couple and assumes that both partners have similar incomes so that this solution does not mean an extraordinary burden for any of them. It would be different if one of them were a millionaire owning a mansion and the other had a minimal wage job. Or maybe to one partner it does not matter at all if the other pays his part. This is just a somewhat "fair" starting point from which decide what suits you both better.

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    Klaycon didn't mention anything about ownership being shared. They're using "they" as a singular, gender-neutral pronoun to describe their partner. – Michelle Jul 30 at 12:35
  • A non owning romantic partner has no more right to the property than any other renter does to their landlord's property. Unless local law says otherwise. It doesn't matter that the owner benefits from a rent payment in ways that the renter cannot. – HenryM 2 days ago
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One option that I've seen before is for one person to pay the rent, and the other person pays the other bills (water, power, internet, groceries, etc). The bills are split so that each person pays roughly the same total amount. Each person is directly paying bills that are in their own name, you're never paying each other.

This assumes, of course, that your rent and bills can be split in a way that's more or less equal (it doesn't work well when utilities are included in the rent).

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  • From an accounting perspective, this wouldn't be any different than Polygnome's comment about paying all bills from a shared account. – jpaugh Jul 30 at 18:23
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    @jpaugh - It doesn't have the practical problems of a shared account, though (i.e., one person can't steal the money if the relationship ends badly). – bta Jul 30 at 19:09
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So you agreed between you that you will hand over $x every month to your partner, and that doesn't need discussing. The only thing that needs discussing is how to do this to avoid bad tax consequences. And you are living together, but have no common bank accounts.

You could pay $x in rent, which is bad because your partner needs to pay tax on it. You could give $x as a present every month, which could mean gift tax is to be paid.

But one thing that is ignored by the tax man is expenses, for food, repairs, nice furniture, phone bill etc. So just make sure that you pay all expenses up to $x, and above that, the expenses are equally shared.

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  • Taxes are much, much more complicated than you're saying, at least in the United States. Usually they won't end up paying any taxes on the rent, since part of the mortgage becomes a business expense at the same time. But talk to an accountant; this isn't a simple subject at all, and depends on many more factors than just rent, and things like phone bills and utilities also become involved. – James Moore Aug 1 at 0:38
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"In 2019 and 2020, you can give up to $15,000 to someone in a year and generally not have to deal with the IRS about it."

Financially/tax-wise, I would consider this a gift. You don't have a lease (right?) so it's not a formal exchange of money for goods/services.

You can give up to $15K without tax consequences.

You are way under that with $500/month or $6K a year.

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