When you file taxes on a co-owned house, each owner files an individual return and reports only their allocated share of the mortgage interest, property taxes, rental income, depreciation, and any gain on sale. The split is set by your legal ownership structure, not by who wrote the checks. Get it wrong and the IRS can send notices to everyone on the deed, because the agency matches what all co-owners collectively report against the 1098s and 1099s issued on the property.
How Ownership Structure Sets the Split
Three structures cover almost every co-owned house, and each one controls the tax math differently.
Joint Tenancy with Right of Survivorship (JTWROS) gives every owner on the deed an equal share. Two joint tenants each report 50% of every tax item; three joint tenants each report one-third. You cannot adjust the split to reflect contributions. When one joint tenant dies, their share passes automatically to the survivors, and only that share gets a new basis equal to fair market value at death.
Tenancy in Common (TIC) allows unequal percentages. One owner might hold 70% and another 30%, and that ratio controls every line item: rental income, deductible expenses, depreciation, and cost basis. Each tenant in common can sell or transfer their share independently, and each owner’s basis reflects their specific percentage of the purchase price plus their share of any improvements.
Community Property applies only to married couples in nine states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska, South Dakota, and Tennessee offer an optional system couples can elect into.1Internal Revenue Service. IRM 25.18.1 Basic Principles of Community Property Law Property acquired during the marriage is owned 50/50 regardless of whose name is on the deed. The biggest tax consequence shows up at death: when the first spouse dies, the entire property receives a stepped-up basis to fair market value, not just the decedent’s half.2Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent
Mortgage Interest and Property Taxes on a Primary Residence
When the house is your home, the deductions live on Schedule A. Neither shows up if you take the standard deduction, so itemizing is a prerequisite.
Each co-owner deducts only their share of the mortgage interest paid during the year, allocated by legal ownership percentage. Across all co-owners combined, the deduction is capped at interest on the first $750,000 of mortgage debt ($375,000 if married filing separately) for loans originated after December 15, 2017.3Internal Revenue Service. Real Estate Taxes, Mortgage Interest, Points, Other Property Expenses
Unmarried co-owners have a meaningful wrinkle. The Ninth Circuit held in Voss v. Commissioner that the mortgage debt limit applies per taxpayer, not per residence, so two unmarried co-owners there could each deduct interest on up to $750,000 of acquisition debt.4Justia Law. Voss v Commissioner, No. 12-73257 (9th Cir. 2015) Outside the Ninth Circuit, the per-taxpayer reading is persuasive but not binding. Married couples filing jointly share one $750,000 cap regardless.
One trap catches a lot of co-owners: you must be legally liable on the mortgage to deduct the interest.5Internal Revenue Service. Other Deduction Questions A co-owner whose name is on the deed but not on the loan generally cannot deduct any interest, because they have no obligation to pay it. This often surprises parents who co-own with an adult child when only one party signed the loan.
Property taxes split the same way, by ownership percentage, and they go on Schedule A as well. The deduction falls under the state and local tax cap, which competes with your state income or sales taxes for the same ceiling.
When One Owner Pays More Than Their Ownership Share
Paying 80% of the mortgage on a house you own 50% does not get you an 80% deduction. You still deduct 50%. The extra amount you cover for the other owner is generally treated as a gift. If that excess exceeds the 2026 annual exclusion of $19,000 in a calendar year, you have to file Form 709, the gift tax return.6Internal Revenue Service. Whats New – Estate and Gift Tax Most people will not owe actual gift tax because the lifetime exemption is high, but the filing requirement stands. Keep records of what each owner actually paid.
Rental Income, Expenses, and Depreciation
If the co-owned house is a rental, each owner files their own Schedule E showing their share of rental income, operating expenses, and depreciation. Ownership percentage controls every line.
Residential rental property is depreciated over 27.5 years under MACRS.7Office of the Law Revision Counsel. 26 US Code 168 – Accelerated Cost Recovery System Each co-owner multiplies the building’s total basis (purchase price minus land value, plus allocated closing costs) by their ownership percentage to get their individual depreciable basis, reports the annual deduction on Form 4562, and carries it to Schedule E. Track cumulative depreciation carefully. It reduces your basis when you sell, and the IRS will treat you as having claimed it even if you forgot.
Ordinary repairs are deductible in the year paid. Improvements that add value, extend useful life, or adapt the property to a new use have to be capitalized and depreciated over 27.5 years. Each co-owner deducts or capitalizes their share.
Passive Activity Loss Limits
Rental income is passive, so a net rental loss generally cannot offset wages or investment income. The main exception: if you actively participate in managing the rental and own at least 10% of the property, you can deduct up to $25,000 of net passive rental losses against other income each year.8Office of the Law Revision Counsel. 26 USC 469 – Passive Activity Losses and Credits Limited Active participation means approving tenants, setting rental terms, authorizing repairs — real decisions, not day-to-day labor.9Internal Revenue Service. Publication 925, Passive Activity and At-Risk Rules
The $25,000 allowance phases out above $100,000 of modified adjusted gross income, losing 50 cents on every dollar until it disappears at $150,000. Married filing separately while living with your spouse at any time during the year zeros it out entirely.9Internal Revenue Service. Publication 925, Passive Activity and At-Risk Rules Each co-owner’s limit is calculated on their own return, using their own MAGI.
Losses you cannot use become suspended passive losses. They carry forward indefinitely, offset future passive income, and release in full when you sell your share in a fully taxable transaction.
The 20% Qualified Business Income Deduction
Section 199A can give co-owners of rental property a 20% deduction on their share of net rental income. To rely on the IRS safe harbor, you need separate books and records for the rental, contemporaneous service logs totaling at least 250 hours in the current year (or in three of the past five years), and a signed statement attached to the return. Each co-owner claims the deduction on their own return based on their share of the net rental income.
When Co-Ownership Becomes a Partnership
Simple co-ownership of a rental you maintain, repair, and lease is not a partnership for tax purposes.10Internal Revenue Service. Rev. Proc. 2002-22 – Conditions Under Which an Undivided Fractional Interest in Rental Real Property Is Not an Interest in a Business Entity Each owner files their own Schedule E, and no entity return is required. The line gets crossed when owners start providing substantial services to guests, as with furnished short-term rentals that include cleaning, concierge, or meals. At that point the IRS may treat the arrangement as a partnership, which triggers Form 1065 and a Schedule K-1 to each owner in place of individual Schedule Es.
Married couples who co-own a rental have another option. They can elect qualified joint venture treatment, which lets both spouses report their shares on separate Schedules E without a partnership return.11Internal Revenue Service. Election for Married Couples Unincorporated Businesses Both spouses must materially participate, and the property cannot be held inside an LLC.
Selling a Co-Owned House
At sale, each co-owner independently calculates capital gain or loss and reports it on Form 8949 and Schedule D.12Internal Revenue Service. About Form 8949, Sales and Other Dispositions of Capital Assets Your gain equals your share of the net sale proceeds minus your individual adjusted basis. Basis starts with your original cost share, goes up by your share of capital improvements, and goes down by all depreciation you claimed or should have claimed.
If the house was your main home, you can exclude up to $250,000 of gain ($500,000 for married couples filing jointly) if you owned and used it as your principal residence for at least two of the five years before the sale.13Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence Each co-owner applies the exclusion to their own share. Two unmarried co-owners who each meet the tests could potentially exclude $250,000 each.
The exclusion does not cover gain attributable to depreciation taken after May 6, 1997. That portion, called unrecaptured Section 1250 gain, is taxed at a maximum federal rate of 25%.14Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed Each co-owner calculates recapture on the depreciation they personally claimed.
Inheritance changes basis unevenly. Under JTWROS or TIC, only the deceased owner’s share steps up to fair market value at death; the survivor’s share keeps its old basis.2Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent Community property gets a full step-up on both halves at the first spouse’s death. A couple who bought for $200,000 and holds property worth $800,000 when one spouse dies gives the survivor a new $800,000 basis in the whole house, often wiping out the capital gains tax on a near-term sale.
When the 1098 or 1099 Lists Only One Owner
Mortgage servicers usually issue Form 1098 in only one borrower’s name, even when several people signed the note.15Internal Revenue Service. Instructions for Form 1098 – Mortgage Interest Statement The same thing happens with Form 1099 for rental income. The IRS gets the full amount and expects someone to report it. Reporting only your share creates a mismatch and can trigger an automated notice.
The fix is nominee reporting. The co-owner who receives the form reports the full amount on their return, then subtracts the portion belonging to the other co-owner, labeled as a nominee distribution. That owner also files a new 1099 (or 1098) with the IRS naming themselves as payer and the other co-owner as recipient, with a Form 1096 transmittal.16Internal Revenue Service. General Instructions for Certain Information Returns Spouses filing jointly skip this because both names ride on the same return.
For mortgage interest, a co-owner not named on the 1098 can deduct their share directly on Schedule A and attach a statement explaining the nominee split. The named co-owner then deducts only their own share, not the full 1098 amount. Being consistent year to year is the best protection against matching notices.
Records That Back Up the Split
A written co-ownership agreement is the single most important document for defending your returns. It should state each owner’s percentage, how expenses are divided, and how income is allocated. Without one, the IRS defaults to equal ownership.
Keep bank statements and canceled checks showing each owner’s actual payments on the mortgage, taxes, insurance, repairs, and improvements. Track capital improvements separately from routine maintenance and hold onto contractor invoices describing the work. For rentals, keep logs of your management activities if you plan to claim the $25,000 passive loss allowance or the qualified business income deduction. Those records matter most years after the fact, when a sale or an audit forces you to rebuild the numbers.