When you file taxes on a co-owned house, each owner files their own individual return and reports only their allocated share of the property’s income, deductions, and gains. The split follows your legal ownership structure, not who wrote the checks. Get that split wrong and every owner on the deed can end up with an IRS notice, because the agency compares what all co-owners collectively report against the 1098s and 1099s issued in one owner’s name.
How Your Ownership Structure Sets the Split
The type of co-ownership on your deed controls every tax allocation. Three structures cover almost all situations.
Joint tenancy with right of survivorship (JTWROS) gives each owner an equal share. Two joint tenants each report 50% of the mortgage interest, property taxes, rental income, and everything else. Three joint tenants each report a third. You cannot adjust the ratio to match who actually paid. When one joint tenant dies, their share passes automatically to the survivors, and only the deceased owner’s portion gets a new cost basis.
Tenancy in common (TIC) allows unequal percentages. If one owner holds 70% and the other 30%, that ratio controls every line: rental income, deductible expenses, depreciation, 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. The flexibility is why unmarried co-owners often choose it.
Community property applies only to married couples in the nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska, South Dakota, and Tennessee offer an opt-in version.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 payoff shows up at death; under JTWROS or TIC only the decedent’s half steps up, but community property gets a full step-up on both halves.2Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent
Deducting Mortgage Interest and Property Taxes on a Co-Owned Home
If the property is your primary residence, the main tax benefits are the mortgage interest and property tax deductions on Schedule A. You have to itemize to use either one.
Mortgage Interest
Each co-owner deducts only their allocated share of the interest paid during the year, based on legal ownership, not payment history. The total deductible interest across all co-owners is limited to interest on the first $750,000 of mortgage debt ($375,000 for 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 wrinkle worth knowing. In Voss v. Commissioner, the Ninth Circuit held that the debt limit applies per taxpayer, not per residence.4Justia Law. Voss v Commissioner, No. 12-73257 (9th Cir. 2015) Under that reading, two unmarried co-owners could each deduct interest on up to $750,000 of acquisition debt. Outside the Ninth Circuit, the per-taxpayer approach is persuasive but not binding. Married couples filing jointly get one $750,000 cap regardless.
One catch trips up families all the time: you must be legally liable on the debt 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 mortgage interest. This comes up often when parents co-own with adult children and only one party signed the note.
Property Taxes
State and local property taxes are deductible on Schedule A, split by ownership percentage. They fall under the SALT cap, which for the 2026 tax year is $40,400 for most filers ($20,200 for married filing separately) under the One Big Beautiful Bill Act signed in July 2025. The cap covers all state and local taxes combined, so your property tax share competes with your income and sales taxes for room under the ceiling.
When One Owner Pays More Than Their Share
Paying 80% of the mortgage on a house you own 50% of does not entitle you to 80% of the interest deduction. You still deduct 50%. The extra you cover for the other owner is generally treated as a gift. If the excess crosses $19,000 in a calendar year (the 2026 annual gift tax exclusion), you have to file Form 709.6Internal Revenue Service. Whats New – Estate and Gift Tax Actual gift tax rarely comes due because the lifetime exemption is high, but the filing requirement still applies. Keep contribution records.
Reporting a Co-Owned Rental on Schedule E
If the co-owned property is rented out, each owner files their own Schedule E showing their share of gross rental income, operating expenses, and depreciation. Ownership percentage controls every line, just as it does for a residence.
Depreciation
Residential rental property depreciates over 27.5 years under MACRS.7Office of the Law Revision Counsel. 26 US Code 168 – Accelerated Cost Recovery System Each co-owner calculates their own depreciable basis by multiplying the building’s total basis (purchase price minus land value, plus closing costs allocated to the structure) by their ownership percentage, 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 assume you took it even if you didn’t.
Repairs Versus Improvements
Ordinary repairs are deducted the year you pay them. 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. A de minimis safe harbor lets you immediately deduct items costing $2,500 or less per invoice if you have a written accounting policy and make the election annually. Each co-owner deducts or capitalizes their share.
Passive Activity Loss Rules
Rental income is passive, so a net rental loss generally cannot offset your wages or business income. The main exception: if you actively participate, 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 real management decisions (approving tenants, setting terms, authorizing repairs), and you must own at least 10%.9Internal Revenue Service. Publication 925, Passive Activity and At-Risk Rules
The $25,000 allowance phases out once modified adjusted gross income passes $100,000. You lose 50 cents for every dollar above that, and it disappears at $150,000 of MAGI.8Office of the Law Revision Counsel. 26 USC 469 – Passive Activity Losses and Credits Limited Married filing separately while living with your spouse at any point in the year drops the allowance to zero.9Internal Revenue Service. Publication 925, Passive Activity and At-Risk Rules Losses you can’t use become suspended passive losses that carry forward indefinitely, offset future passive income, or release in full when you sell your share in a fully taxable transaction. Each co-owner’s limit is calculated individually.
Qualified Business Income Deduction
Co-owners of rental property may qualify for the 20% Section 199A deduction on net rental income. The One Big Beautiful Bill Act made the deduction permanent starting in 2026 and expanded the phase-in ranges. The IRS safe harbor requires separate books, 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 your return. Each co-owner claims the deduction individually.
When Simple Co-Ownership Turns Into a Partnership
Simple co-ownership of a rental you maintain, repair, and lease out is not a partnership for federal 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 reports on their own Schedule E, and no entity return is needed. But once you start providing substantial services to guests (think furnished short-term rentals with cleaning, concierge, or meals), the IRS can reclassify the arrangement as a partnership. That triggers Form 1065, and each owner gets a Schedule K-1 instead of preparing their own Schedule E.
Married co-owners of a rental have another route. They can elect qualified joint venture treatment, letting both spouses report their shares on separate Schedules E without filing 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 or similar entity.
Selling a Co-Owned Property
At sale, each co-owner independently figures 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 is your share of net proceeds minus your individual adjusted basis. Basis starts with your original cost share, increases by your share of capital improvements, and decreases by all depreciation you claimed or should have claimed.
Section 121 Exclusion for a Primary Residence
If the co-owned property was your main home, you can exclude up to $250,000 of gain from income ($500,000 for married filing jointly). You must have owned and used the home 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 separately to their own share. Two unmarried co-owners who each meet the tests could exclude up to $250,000 each.
The exclusion does not cover gain attributable to depreciation taken after May 6, 1997.13Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence If you converted a rental to your primary residence and claimed depreciation during the rental years, that depreciation-related gain (unrecaptured Section 1250 gain) is taxed at a federal rate of up to 25%.14Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed Each co-owner calculates their own recapture based on the depreciation they individually claimed.
Step-Up in Basis for Inherited Shares
Under JTWROS or TIC, only the deceased owner’s share receives a stepped-up basis to fair market value at death. The surviving co-owner’s basis in their own share stays the same. Community property is treated differently. When the first spouse dies, the entire property (both halves) receives the stepped-up basis.2Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent A couple who bought their home for $200,000 and holds it at $800,000 when one spouse dies would see the survivor’s new basis in the whole property become $800,000, wiping out the gain on a near-term sale.
Handling 1098s and 1099s Issued in One Owner’s Name
Mortgage servicers usually issue Form 1098 in only one borrower’s name, even when several people are on the loan.15Internal Revenue Service. Instructions for Form 1098 – Mortgage Interest Statement The same happens with Form 1099 for rental income. The IRS receives the full amount and expects someone to report it. Reporting only your share creates a mismatch that can trigger an automated notice.
The fix is nominee reporting. The co-owner named on the form reports the full amount on their return, then subtracts the portion belonging to the other co-owner and labels it as a nominee distribution. They also file a new Form 1099 (or 1098) with the IRS showing themselves as the payer and the other co-owner as the recipient, together with a Form 1096 transmittal.16Internal Revenue Service. General Instructions for Certain Information Returns Spouses filing jointly can skip the nominee return because both names are on the same return.
For mortgage interest specifically, a co-owner not named on Form 1098 deducts their allocated share directly on Schedule A. An attached statement explaining the nominee arrangement heads off IRS correspondence. The named co-owner deducts only their share, not the full amount printed on the 1098. Being consistent from year to year is the best defense against automated matching notices.
Records That Support Every Position on Your Return
A written co-ownership agreement is the single most important document. It should state each owner’s percentage, spell out how expenses are divided, and describe how income is allocated. Without one, the IRS default is equal ownership, which can undercut an unequal split you’re claiming.
Beyond the agreement, keep bank statements and canceled checks showing each owner’s actual payments toward mortgage, property taxes, insurance, repairs, and improvements. Track capital improvements separately from routine maintenance, and hold on to contractor invoices that describe the work. For rentals, keep management logs if you plan to claim the $25,000 passive loss allowance or the qualified business income deduction. Both require evidence of active involvement, and the records matter most years later, when an audit or a sale forces you to reconstruct the numbers.