Marty McCutchen, CPA P.C. - 817-350-6719

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Tax Tips for Property Co-Owners

If you’re the co-owner of a property, whether it is joint tenancy as in marriage or tenancy in common between real estate partners, some tips can make life easier for you come tax time. Read on to learn more about how to handle co-ownership of property.

Types of Co-Ownership

There are several types of co-ownership of property. Below, three types are explained.

Joint Tenancy

Joint tenancy is a term that describes and defines ownership interests and rights between two or more property co-owners. In joint tenancy, the two (or more) property owners have equal rights and responsibilities of the real estate. If the joint tenancy is between two people, each individual has 50 percent ownership.

Joint tenancy can apply to:

  • Personal property
  • Bank and brokerage accounts
  • Business ownership
  • Real estate investment property

In joint tenancy, the right of survivorship exists. This means that if one of the co-owners dies, even if they have heirs, those heirs will not inherit their shares of the property. Instead, the other joint tenant receives that share of the property. This is the typical type of co-ownership between a married couple; however, joint tenancy can be established between unmarried individuals, family members, friends, or investment partners.

Tax liability and deductions are generally split 50-50 (or some other equal division if there are more than two co-owners).

Tenancy in Common

The main difference between joint tenancy and tenancy in common is that where joint tenancy provides equal ownership between all co-owners, tenancy in common allows co-owners to own different percentages of the property. Furthermore, ownership can be acquired after the original owner purchased the property. The owners have rights only to their percentage of the property; therefore, if one owner dies, their share passes to their heirs, not to the other owner(s) as it would in joint tenancy.

When real estate taxes are assessed on the property, all owners listed on the deed are legally responsible for the total amount of the tax. How those taxes are collected from each owner and paid is up to them. For example, if there are three owners in a tenancy in common agreement, they may decide to split the unequally. In situations where there is a joint mortgage, the mortgage interest deduction can be divided between owners by including a mortgage interest statement when filing taxes.

Tenants in common should always seek an ownership agreement in writing to protect each owner’s interests in the property and to delineate how taxes will be paid and deductions will be claimed.

Tenancy by Entirety

Tenancy by entirety is only for married couples and is only an option in 25 states and Washington, D.C. It comes with survivorship, like joint tenancy, but there are differences.

Recall that in a joint tenancy situation, each owner has an equal share of the property with equal rights and responsibilities. For a married couple, each individual owns 50 percent of the property.

However, in tenancy by entirety, the individuals are viewed as one person. Each person owns 100 percent of the property. Any action regarding the property, i.e., selling the property, requires mutual consent.

The primary benefit of tenancy by entirety is that the property cannot be used to satisfy the debts of one party.

The primary disadvantage of tenancy by entirety is that it guarantees the property goes into probate once the second spouse dies. This could be impactful for any heirs.

When sharing property ownership or estate planning, always rely on a qualified accountant or CPA to guide you on the best option for your unique situation.