Tenants in Common & Tax Returns

Tenants in common own property as co-owners, with each person owning a percentage of the property. However, it is not necessary that either owner actually live on the property as a resident. Taxes on property held by tenants in common is a complicated topic so you should contact a tax attorney or CPA for advice on your specific situation. The facts in this article are for informational purposes only and do not constitute legal advice.

For federal tax purposes, the Internal Revenue Code allows home owners to deduct mortgage interest paid on a qualifying home loan as an itemized deduction on Schedule A. Most states allow for a similar deduction on state income tax returns. The bank that handles the home loan will provide a Form 1098 to at least one of the tenants in common.

The IRS limits this deduction to ​$750,000​ (​$375,000​ if married filing separately) for debt originating on ​December 16, 2017​ or later, or ​$1 million​ (​$500,000​ if married filing separately) if you incurred the debt before ​December 16, 2017​.

A Form 1098 reports the amount of mortgage interest paid to the bank. The amount of qualified mortgage interest claimed by married individuals is deducted on Schedule A of Form 1040 and can only be claimed on one Form 1040.

If property is owned by tenants in common who are not married, or who are divorced in accordance with state law, the tenants in common can each report a share of the mortgage interest reported to them on Form 1098. The amount is to be recorded on Schedule A of Form 1040 for federal tax purposes.

If only one owner receives a Form 1098, then the other owner or owners must report his share of mortgage interest on Schedule A and attach a statement to his tax return. The statement must state the name and address of the owner who received the Form 1098.

​Consider Also:​ Schedule A: Instructions on How to Itemize Deductions

For federal tax purposes, the Internal Revenue Code allows an itemized deduction for real estate taxes paid to a state, local or foreign government. Real estate taxes are reported on Schedule A of Form 1040. Most states allow a similar deduction for state income tax purposes.

Each tenant in common should report the share of property taxes that each paid or for which each is liable. The tenants in common should be careful to ensure that they do not report more than the total taxes paid to a state, local or foreign government.

​Consider Also:​ Claiming Property Taxes on Your Tax Return: Rules for Tax Returns for Year 2020

Rental real estate may be owned by tenants in common. As long as the tenants in common do not form a partnership or transfer legal title of the property to another business entity, such as a corporation or limited liability company, the tenants in common can each report a share of income and expenses from the real estate on Schedule E of Form 1040.

Tenants in common have to be careful in regards to their ownership agreement and the services that they provide to tenants who rent from them. The Internal Revenue Service may rule that the tenants in common have formed a partnership. In the event that a partnership has been formed, a Form 1065 must be filed for federal tax purposes. Most states have similar reporting requirements.

​Consider Also:​ Who Must File Income Taxes?