Tax and financial implications of sharing my apartment with my partner

Question

This is essentially the USA version of Currently sole owner of a property. My girlfriend is looking to move in with me and is offering to pay 'rent'. Am I at risk here?. The US doesn't seem to have something similar to the UK's rent-a-room laws.

My partner and I (unmarried) are moving in together. We'd been thinking of moving into a rented apartment and simply splitting rent and utilities, but instead I used savings to buy a one-bedroom condo that we'll live in together. I do not have a mortgage. We both have relatively stable jobs.

My partner would like to pay something to live in the new condo. The idea is to defray costs for me (condo fees, repairs, maintenance, property taxes, and opportunity costs on the savings that I used to buy the condo).

What's the right way to do this? To make things concrete, let's assume that the rent for the condo would be around 2200$/month if we were renting it, and that my partner would pay about $600 per month. We'll split utilities (roughly 200-300$ per month) and other shared expenses (roughly 500$ per month) on top of these $600.

I can think of two ways of doing this. Which one is best? Are there other ways?

• Monthly $600 transfers from my partner to me. This is the simplest, but we're worried about the tax implications: does that count as a regular rental, which I'd have to declare and pay taxes on? Or does it count as a gift, in which case the total yearly amount is below the yearly individual donation threshold and thus wouldn't be taxed?

• Having my partner pay for all our shared expenses (roughly $700-800) plus the $200 monthly condo fee. This way my partner would be paying for my share of the common expenses ($350-400) plus $200 of condo fee that I would have otherwise paid, totaling $550-600. How would this setup be taxed? Would it count as rent too? Or as a gift? Or something else?

I'm in the US on a non-immigrant visa, which is often relevant for tax purposes.

Answer 1

I am not a lawyer nor a tax accountant, so if such chimes in here I'll gladly defer. But my understanding is:

If you're romantically involved and living together you're considered a "household" and thus your finances are deemed shared for tax purposes. Any money your partner gives you toward paying the bills is not considered "rent" but "her contribution to household expenses". (I don't know the genders but I'll call your partner "her" for convenience.) This is not income and is not taxed. On the off chance that the IRS actually investigated your arrangement, don't call any money she gives you "rent": call it "her contribution to living expenses".

If you were two (or more) random people sharing a condo purely for economic reasons, i.e. you are not a family in any sense but each of you would have trouble affording a place on your own, it's common for all the room mates to share the rent or mortgage, utilities, etc, but for one person to collect all the money and write one check to the landlord, etc. Tax law does not see this as the person who writes the check collecting rent from the others, it's just a book-keeping convenience, and so there is no taxable transaction. (Of course the landlord owes taxes on the rental income, but that's not your problem.) In that case it likely would be different if one person outright owned the place and really was charging the others rent. But then he could claim deductions for all the expenses of maintaining it, including depreciation, so if it really was a case of room mates sharing expenses, the taxable income would likely be just about zero anyway.

So short answer: If you really are a "couple", there are no taxable transactions here. If the IRS should actually question it, don't refer to it as "collecting rent" or any other words that imply this is a business arrangement. Describe it as a couple sharing expenses. (People sometimes have created tax problems for themselves by their choice of words in an audit.) But the chance that you would ever be audited over something like this is probably remote.

I suppose that if at some point you break up, but you continue to live together for financial reasons (or whatever reasons), that could transform this into a business relationship and that would change my answer.