Co-habitating question

[moneybags]

Originally Posted by jpg7n16

If you're truly hoping to work this like a life partner situation, you'll need to speak to an estate attorney in your area about creating a will. And you'll need to pay special attention to beneficiary designations on life insurance policies, bank accounts, etc.

I know that's a bit off topic, but it's pretty relevant to your situation.

And as pointed out above, lease vs mortgage affects your credit completely different. Lease shouldn't be a big deal. Mortgage and asset titling could be a big deal. So if you're leasing, nothing to worry about. If you're buying, speak to an attorney in your area about the best way to set up the arrangement.

There are lawyers that specialize in the legalities same sex issues. I'd find one and get advice on what you need.

[sav_n00b]

Thanks for the replies.

I know, and am preparing for, the other paperwork formalities like a living will, beneficiary changes, etc. My primary question was about me having the mortgage and she not.

The one comment about if there's a lease, then her payments count as income is one of the questions I had. Would I have to claim her portion of expenses as taxable income if there's a lease signed? Does that fact that it's my primary residence factor in?

For now, we are planning to keep most accounts, etc. separate. But there's still the matter of splitting expenses, and ergo my question about to have a lease between us or not.

Thanks, everyone, for the comments, and I'll be checking out the live-in agreement link as well.

[jpg7n16]

Originally Posted by sav_n00b

The one comment about if there's a lease, then her payments count as income is one of the questions I had. Would I have to claim her portion of expenses as taxable income if there's a lease signed? Does that fact that it's my primary residence factor in?

No it's not income to you at all. Unless you bought the house, and leased out half to her. In that case, YOU are the landlord - so you'd be charging her rent, and that would be income.

But if you both signed one lease to rent the place you're living in, none of her rent payments are your income. They are commingling of funds to pay a shared expense.

I rent with my brother and a roommate. We're in an apartment. We each pay our separate portions of the bills, and rent - as described in the lease agreement. We each write my brother a check every month after calculating everything, and he pays all the bills from his account. None of our rent payments is considered income to my brother. They are shared expenses.


The IRS has some info available about shared expenses here: Internal Revenue Manual - 5.8.5 Financial Analysis

And in their process it's clear that the IRS allows for shared expenses between individuals in a lease arrangement.

From: Internal Revenue Manual - 5.8.5 Financial Analysis

The OE/OS should secure sufficient information concerning the non-liable person’s assets and income to determine the taxpayer’s proportionate share of the total household income and expenses. Review the entire household's information and:

1. Determine the total actual household income and expense.
   
2. Determine what percentage of the total household income the taxpayer contributes.
   
3. Determine allowable expense amounts using the rules in this chapter and IRM 5.15.1, Financial Analysis Handbook.
   
4. Determine which expenses are shared and which expenses are the sole responsibility of the taxpayer.
   
5. Apply the taxpayer's percentage of income to the shared expenses.
   
6. Verify that the taxpayer actually contributes at least this amount to the total household expense.
   
7. Do not allow the taxpayer any amount paid toward the other person's discretionary expenses.

[sav_n00b]

Originally Posted by jpg7n16

No it's not income to you at all. Unless you bought the house, and leased out half to her. In that case, YOU are the landlord - so you'd be charging her rent, and that would be income.

But if you both signed one lease to rent the place you're living in, none of her rent payments are your income. They are commingling of funds to pay a shared expense.

I DO own the house. It's my house, in my name, and the mortgage is in my name. She'll be moving in with me. Which is why I am asking should we just split expenses, or should we draw up a lease for the time being?

[Fizgig]

I'm no lawyer so absolutely double check this, but I think that a lease is probably unnecessarily complicating the situation. Would it be possible to draw up a document stating that for a stated time period, your girlfriend is responsible for X amount per month in household expenses, and payment of such does NOT confer equity or rights to the property? I imagine a quick consultation with a lawyer would provide a simple solution. There are offices around here that offer 30 minute consultations for $20, in the hopes that you'll hire them for a bigger job.

Edit - Oh, and her credit will be fine. Plenty of people have solid credit scores and do not have a mortgage.

[cypher1]

Originally Posted by jpg7n16

No it's not income to you at all. Unless you bought the house, and leased out half to her. In that case, YOU are the landlord - so you'd be charging her rent, and that would be income.

But if you both signed one lease to rent the place you're living in, none of her rent payments are your income. They are commingling of funds to pay a shared expense.

I rent with my brother and a roommate. We're in an apartment. We each pay our separate portions of the bills, and rent - as described in the lease agreement. We each write my brother a check every month after calculating everything, and he pays all the bills from his account. None of our rent payments is considered income to my brother. They are shared expenses.


The IRS has some info available about shared expenses here: Internal Revenue Manual - 5.8.5 Financial Analysis

And in their process it's clear that the IRS allows for shared expenses between individuals in a lease arrangement.

That's good to know. My co-workers were trying to tell me that because my friends are renting at my house, that i should be reporting as additional income. House is under my name, but they do just do a month to month lease. I include utilities in the rent and they're good about not using excessive water/electricity.

[sav_n00b]

Originally Posted by Fizgig

Would it be possible to draw up a document stating that for a stated time period, your girlfriend is responsible for X amount per month in household expenses, and payment of such does NOT confer equity or rights to the property? I imagine a quick consultation with a lawyer would provide a simple solution.

Fizgig, I think this is what we're leaning toward. Meeting with an attorney that's familiar with local laws that can guide us toward drawing up some kind of "pre-nup" type of agreement. Thanks!

[jpg7n16]

Originally Posted by sav_n00b

I DO own the house. It's my house, in my name, and the mortgage is in my name. She'll be moving in with me. Which is why I am asking should we just split expenses, or should we draw up a lease for the time being?

Originally Posted by cypher1

That's good to know. My co-workers were trying to tell me that because my friends are renting at my house, that i should be reporting as additional income. House is under my name, but they do just do a month to month lease. I include utilities in the rent and they're good about not using excessive water/electricity.

Okay so here's a pretty definitive thing about it:

IRS Courseware - Link & Learn Taxes

Which of the following taxpayers is exempt from reporting rental income?

1. Tom, who rents his former residence in Ohio while he works overseas
2. Sebastian, a resident alien who rents his former residence in Germany
3. Georgina, who owns a home and receives rent from her roommate
4. None of the above

You chose:
3 - Incorrect. Taxpayers must report rental receipts received from their former or current residence. Try again.

Which makes sense - if you own the home, the portion of rent used for payment of board/housing - goes towards building your equity in the home, of which your roommate has no ownership interest in. Therefore the rent income is benefitting you, and not them.


So those who OWN the home and charge rent to roommates, would have to claim that rent as income.

Those who do NOT own the home, but together lease an area (house, apartment, etc.) should not inlcude the rent from their roommates in their income.

This is kinda what I said earlier, but I may not have been clear.



The only way to avoid including the rent in income would be to change ownership of the home from 'person A only' to 'persons A and B.' Then because it is a shared ownership, it becomes a shared expense. This is an asset titling issue that you should speak to a lawyer in your area about what is best for your situation.

[cypher1]

Originally Posted by jpg7n16

Okay so here's a pretty definitive thing about it:

IRS Courseware - Link & Learn Taxes



Which makes sense - if you own the home, the portion of rent used for payment of board/housing - goes towards building your equity in the home, of which your roommate has no ownership interest in. Therefore the rent income is benefitting you, and not them.


So those who OWN the home and charge rent to roommates, would have to claim that rent as income.

Those who do NOT own the home, but together lease an area (house, apartment, etc.) should not inlcude the rent from their roommates in their income.

This is kinda what I said earlier, but I may not have been clear.



The only way to avoid including the rent in income would be to change ownership of the home from 'person A only' to 'persons A and B.' Then because it is a shared ownership, it becomes a shared expense. This is an asset titling issue that you should speak to a lawyer in your area about what is best for your situation.

Ok. That makes sense. Note to self: Do not deposit rent cash into any bank account

[DebbieL]

Any rent charged to roommates (when you own the house) is most definitely income. You could get nailed eventually if you don't claim it. Be especially nice and don't tick off any of your neighbours (I think that's usually how someone is caught - at least around here). Or, you could just claim the income like a good little citizen

[MiikeB]

Originally Posted by cypher1

That's good to know. My co-workers were trying to tell me that because my friends are renting at my house, that i should be reporting as additional income. House is under my name, but they do just do a month to month lease. I include utilities in the rent and they're good about not using excessive water/electricity.

It most definitely is additional income. Think about it, you get to write off ALL the mortgage interest on your taxes they get to write off none. You are responsible for the mortgage, the agreement for them to pay you money to live in your house is completely separate and income.

[snafu]

If you are acknowledging income [rent] to IRS, I presume you would be able to offset a portion of that income by charging off 1/2 utilities, maintenance, replacement and repair.

Wouldn't it be simpler to work out her share of all costs and have her portion pay the equivalency to cover food, utilities, with anything left over for your maintenance/repair/replacement fund?

[GrimJack]

Originally Posted by sav_n00b

Thanks for the replies.

I know, and am preparing for, the other paperwork formalities like a living will, beneficiary changes, etc. My primary question was about me having the mortgage and she not.

The one comment about if there's a lease, then her payments count as income is one of the questions I had. Would I have to claim her portion of expenses as taxable income if there's a lease signed? Does that fact that it's my primary residence factor in?

For now, we are planning to keep most accounts, etc. separate. But there's still the matter of splitting expenses, and ergo my question about to have a lease between us or not.

Thanks, everyone, for the comments, and I'll be checking out the live-in agreement link as well.

DW and I have been together for 20 years now and still do not intermingle our finances (er, and we are not really married so DGF is probably more accurate). It has never been an issue, as we are both pretty independent. We are still renting but expect to buy a house in a couple of years.

[DebbieL]

GrimJack,

I think separate finances works great with 2 independent people. I never felt the need to combine finances with anyone before (I had a couple long term common law relationships). When my DH and I got married 4.5 years ago we were 36 and 32. By those ages, we were both very independent and wanted to keep control of our own finances. It worked very well for us. We have gradually joined more and more things (something I've never wanted to do before). We still keep our own accounts, but have shifted more things to joint account than before. We both like controlling our own money. I do find he's more of a spender than me, so as we've joined things, we've laid out a more defined budget. I've built in lots of spending money for him (or he'd be miserable, lol), but not so much for me! We never fight about money (which I understand is a huge issue for many couples). I never fought about money with any of my exes either (things were always separate).