Financial Cohabitation Strategies with New Tax Law

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desi_kalle
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Financial Cohabitation Strategies with New Tax Law

Post by desi_kalle » Tue Jan 02, 2018 1:17 am

I posted about 2 years ago (topic 187591) in regards to cohabitation versus paying the marriage penalty tax. Very little has changed in my cohabitation status, but the recent tax law has removed most of the marriage penalty tax. Specifically, the HOH tax bracket has essentially been removed and MFJ brackets are mostly double the single bracket amounts. I think from a financial perspective, cohabitation is still beneficial vs. marriage, but wanted to check if there are any other strategies I'm missing with the new tax law.

Overview
- 175k + 165k Salary
- Multiple OOS Rentals (net ~40k/year total)
- 2 kids
- HCOL area (Bay area) with 680k mortgage, 1.3M value (co-own).
- Both max 401k + backdoor Roth IRA
- Both max DC-FSA

With the 10k property tax + state income tax max deduction, I plan to shift the complete mortgage payment to the 175k earner. This way, the 165k earner can take the 12k standard deduction with the 175k earner taking the 10k property tax + state income tax and the full mortgage interest deduction.

Again, as mentioned in my previous thread, please only discuss financial/tax related strategies. Please no comments related to emotional or social perspective of cohabitation.

carolinaman
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Re: Financial Cohabitation Strategies with New Tax Law

Post by carolinaman » Tue Jan 02, 2018 8:49 am

I do not know the answer to these questions, but (1) will the IRS to allow mortgage deduction by only one party to a joint mortgage? (2) Can one party take the property tax deduction for a jointly owned property? At a minimum, you would need to prove that the individuals claiming each deduction paid for them. But not sure if that is sufficient. Hopefully, one of our tax experts will clarify.

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triceratop
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Re: Financial Cohabitation Strategies with New Tax Law

Post by triceratop » Tue Jan 02, 2018 9:11 am

carolinaman wrote:
Tue Jan 02, 2018 8:49 am
I do not know the answer to these questions, but (1) will the IRS to allow mortgage deduction by only one party to a joint mortgage? (2) Can one party take the property tax deduction for a jointly owned property? At a minimum, you would need to prove that the individuals claiming each deduction paid for them. But not sure if that is sufficient. Hopefully, one of our tax experts will clarify.
From pub936 on potential exclusion of shared part of home:
You do not rent (directly or by sublease) the same or different parts of your home to more than two tenants at any time during the tax year. If two persons (and dependents of either) share the same sleeping quarters, they are treated as one tenant.
And on form1098:
More than one borrower. If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. Show how much of the interest each of you paid, and give the name and address of the person who received the form. Deduct your share of the interest on Schedule A (Form 1040), line 11, and print "See attached" next to the line. Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13.
Similarly, if you are the payer of record on a mortgage on which 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 (Form 1040), line 10. Let each of the other borrowers know what his or her share is.
It appears OP's cohabitation strategy is fine as long as they abide by these rules.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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CAsage
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Re: Financial Cohabitation Strategies with New Tax Law

Post by CAsage » Wed Jan 03, 2018 6:38 am

I believe HOH still gets a $18k standard deduction, brackets look the same but the base tax paid is a bit less. I have friends who co-own a pricey beach house, and they split the costs. Might suggest they look into not splitting 50/50 if you can in fact choose who gets the deduction.....
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

desi_kalle
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Re: Financial Cohabitation Strategies with New Tax Law

Post by desi_kalle » Wed Jan 03, 2018 12:25 pm

CAsage wrote:
Wed Jan 03, 2018 6:38 am
I believe HOH still gets a $18k standard deduction, brackets look the same but the base tax paid is a bit less. I have friends who co-own a pricey beach house, and they split the costs. Might suggest they look into not splitting 50/50 if you can in fact choose who gets the deduction.....
Yes, HOH is still there, but the new brackets are MUCH less favorable than before. I was hoping there would be other strategies that opened up with the new tax law change to benefit my situation. The shifting of mortgage interest payment only saves $2k in deduction since state tax is already much more than the 10k max.

desi_kalle
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Re: Financial Cohabitation Strategies with New Tax Law

Post by desi_kalle » Fri Jan 19, 2018 1:14 am

Any other thoughts on strategy?

a5ehren
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Re: Financial Cohabitation Strategies with New Tax Law

Post by a5ehren » Fri Jan 19, 2018 11:42 am

I'd consult with a tax attorney or a good CPA who has studied the whole tax law. I doubt many on BH are going to have advice for your specific situation, and you clearly have the money to afford good advice.

There are other legal benefits to marriage (implied POA in cases of incapacity, simplified inheritance if one spouse dies without a will, etc) that you may want to look into now that your tax advantages have largely evaporated, assuming you haven't handled them through other means.

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