Tax consequences of paying "rent" to romantic partner that owns the house

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.

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.

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.

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).

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.

"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.