Living Together

Whether you currently are living with someone to which you aren't married, or you are considering it in the future, there are a few tax changed you will have to deal with. The topics covered in this Life Event are listed below:

Income from Joint Accounts

If you and another person who is not your spouse have jointly purchased a home, you may be eligible to deduct the interest paid on the mortgage. If you and another person shared the liability and paid the interest on a mortgage that was for your home, you can deduct the interest paid on the mortgage even though you did not receive a Form 1098.

Usually, only one Form 1098 is sent for a mortgage. If the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return. Show how much of the interest each of you paid, and give the name and address of the person that received the form. Deduct your share of the interest on Schedule A and write See Attached.

If you are the payer of record on a mortgage that there are other borrowers entitled to a deduction for the interest shown on the form 1098 you received, deduct only your share of the interest on Schedule A. Tell each of the other borrowers their portion of the interest.

If the total interest income you received includes any amount that you received as a nominee for the real owner, show that amount separately below a subtotal of all interest income listed. Identify the amount as "Nominee Distribution" and subtract it from the interest income subtotal.

If you receive a Form 1099-INT that shows your taxpayer identification number, and names two or more recipients or includes amounts belonging to another person, you must file a Form 1099-INT with the IRS to show the proper distributions of the amounts shown. Complete a Form 1099-INT and Form 1096, Annual Summary and Transmittal of U.S. Information Returns, and file both forms with your Internal Revenue Service Center. Give the other person(s) Copy B of the Form 1099-INT that you filed as a nominee. On Form 1099-INT and Form 1096, you should be listed as the "Payer." Prepare one Form 1099-INT for each other owner and show that person as the "Recipient."

Joint Accounts Example

Paula Citizen receives a Form 1099-INT that shows a total of $1,500 of interest income earned on a savings account that she holds jointly with her sister. They have agreed to share the yearly interest income in proportion to the amount that each has invested. Paula's social security number was given to the bank for its record keeping purposes. Her sister deposited 30% of the amount invested in this account.

As the nominee, Paula received the amount of interest income belonging to her sister. This amount is $450, or 30% of the total interest of $1,500. Paula must give her sister a Form 1099-INT by January 31, 2011, showing $450 of interest income earned for 2010.

Example of form 1099-INT

Paula Citizen must also send a copy of the Form 1099-INT, along with Form 1096, to the Internal Revenue Service Center by February 28, 2010. Paula must enter her name, address, and social security number as that of the "Payer" on the Form 1099-INT. She enters her sister's name, address, and social security number in the blocks provided for identification of the "Recipient."

When Paula prepares her federal income tax return, report the total amount of interest income and identify the name of the bank that paid this interest. Show the amount belonging to the sister, $450, as a subtraction from a subtotal of all interest and identify this subtraction as a "Nominee Distribution." (Her sister will report the $450 of interest income on her tax return, if she has to file a return, and identify Paula as the payer of that amount.)

Dependent Test

If someone that is not related to you lives with you as a member of your household for the entire year, you may be able to claim that person as a dependent provided the person also meets the following four conditions:

The person is a US citizen or resident.
The person is not eligible to file a joint return with someone else.
You provided more than 50% of that person's total support.
The person must have less than $3,650 of gross income in 2010.

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