If you bought a house with someone who isn’t your spouse, each of you files your own individual tax return and claims only the mortgage interest, property taxes, and other home expenses you personally paid. The deed’s ownership percentages control how sale proceeds get split later, but they do not control how you divide deductions each year. The IRS looks at who wrote the checks, and it expects your name on the mortgage note before it will let you deduct interest at all.
The Rule That Governs Everything: You Deduct What You Paid
The IRS applies a simple principle to co-owned property: you can only deduct the mortgage interest and property taxes you personally paid during the tax year.1Internal Revenue Service. Publication 936 (2025), Home Mortgage Interest Deduction This “paid by” rule overrides whatever the deed says about ownership percentages. Own 50% of the home but paid 70% of the mortgage this year? You deduct based on the 70%.
There is a second condition that trips people up. To deduct mortgage interest, you must also be legally liable for the debt, meaning your name has to appear on the mortgage note itself, not just on the deed.1Internal Revenue Service. Publication 936 (2025), Home Mortgage Interest Deduction A co-owner whose name is on the deed but not on the loan cannot deduct any mortgage interest, even if they hand their co-owner cash every month for half the payment. Both tests apply: legal liability and actual payment.
If one co-owner makes no payments during the year, that person gets no deduction, no matter what the deed says. If one co-owner pays more than their ownership share, they can claim the deduction up to the amount they paid, as long as they are named on the note.
Decide Whether to Itemize Before Anything Else
The mortgage interest and property tax deductions only help you if you itemize, and itemizing only helps if your total itemized deductions exceed the standard deduction. For the 2026 tax year, the standard deduction is $16,100 for single filers and $24,150 for heads of household.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
Each co-owner makes this decision independently on their own return. One of you might itemize while the other takes the standard deduction. Nothing requires you to match. Run the numbers both ways. If your share of mortgage interest and property taxes, combined with any other itemized deductions like charitable contributions, comes in below $16,100 as a single filer, the standard deduction gives you a bigger break and no paperwork.
Splitting the Mortgage Interest and Handling Form 1098
When two or more co-borrowers share a mortgage, each person deducts only their share of the interest actually paid. If total interest for the year was $18,000 and you split payments 60/40, the person paying 60% deducts $10,800 and the other deducts $7,200.1Internal Revenue Service. Publication 936 (2025), Home Mortgage Interest Deduction
Each unmarried co-borrower applies the acquisition debt limit on their own return. For mortgages taken out after December 15, 2017, you can deduct interest on up to $750,000 of mortgage debt. Because unmarried co-owners file separately, each person gets the $750,000 cap applied individually, unlike married couples filing jointly who share a single $750,000 limit.1Internal Revenue Service. Publication 936 (2025), Home Mortgage Interest Deduction
The paperwork is where things get awkward. Lenders issue Form 1098 under the Social Security number of the primary borrower, usually the first person listed on the note. That form shows the total interest paid on the loan for the year, regardless of who actually paid. The IRS gets a copy. When the number you deduct doesn’t match the 1098, the IRS may generate a notice unless you file it correctly.
If Your Name Is on Form 1098
Report only your share of the interest on Schedule A, Line 8a. Do not enter the full 1098 amount and then subtract your co-owner’s portion; just enter what you actually paid. Then tell your co-borrower what their share of the interest was so they can report it on their own return.1Internal Revenue Service. Publication 936 (2025), Home Mortgage Interest Deduction
If Your Name Is Not on Form 1098
Report your share of the interest on Schedule A, Line 8b, the line designated for mortgage interest not reported to you on a Form 1098. Attach a statement (or include one with your e-filed return if your software allows it) that gives the name and address of the co-owner who received the 1098, the total interest shown on that form, and the amount you paid and are claiming.3Internal Revenue Service. Instructions for Schedule A (Form 1040) (2025) Print “See attached” next to Line 8b. That statement is what prevents an IRS notice when your co-borrower’s return shows less interest than the lender reported.
Splitting Property Taxes and the SALT Cap
Property taxes follow the same “paid by” rule. Each co-owner deducts the real estate taxes they personally paid, reported on Schedule A, Line 5b.4Internal Revenue Service. Instructions for Schedule A (Form 1040) If one person paid the entire tax bill, that person claims the full deduction. Because lenders do not issue a separate tax form for property taxes per borrower, you skip the 1098-style reconciliation, but your own bank and escrow records need to back up whatever you claim.
If your mortgage payment includes property taxes through an escrow account, you deduct only the amount the lender actually sent to the taxing authority during the year, not the total you paid into escrow.5Internal Revenue Service. Publication 530, Tax Information for Homeowners Your annual escrow statement lists the exact amount disbursed.
The state and local tax (SALT) deduction cap limits your total deduction for state and local income taxes (or sales taxes) plus property taxes. For 2026, the cap is approximately $40,400 for most filers. For married individuals filing separately, the cap is half that amount. The cap phases down for taxpayers with modified adjusted gross income above roughly $505,000, and it cannot drop below $10,000.6Internal Revenue Service. Topic No. 503, Deductible Taxes Each co-owner applies the cap on their own return, so it is per filer, not per property.
When Unequal Contributions Create a Gift Tax Filing
Co-owners who contribute unequal amounts toward the down payment or mortgage can quietly create a gift tax reporting obligation. Put $100,000 down on a home you co-own 50/50 while your co-owner puts down nothing, and you have effectively transferred $50,000 in value to them. The IRS treats that as a gift.
For 2026, you can give up to $19,000 per person per year with no reporting requirement. Anything above that annual exclusion does not necessarily produce a tax bill, but you must report the excess on Form 709. The overage counts against your lifetime gift and estate tax exemption, which is $15,000,000 for 2026.7Internal Revenue Service. What’s New — Estate and Gift Tax Very few co-owners will actually owe gift tax, but the filing requirement itself catches people off guard.
The cleanest way to sidestep the issue is to structure ownership percentages to match actual contributions. If one person puts in 70% of the down payment, hold title as tenants in common with a 70/30 split. Each person then received value proportional to what they paid, and no gift occurred.
Records Every Co-Owner Needs
The documentation burden falls entirely on you when deductions are split. The IRS’s file shows a single Form 1098 issued to one person, and your claimed deduction will not match that form. Without proof, you lose the deduction.
Keep these for at least three years after filing, and longer if you are tracking basis for a future sale:
- Form 1098, with a copy for both co-owners even though only one name appears on it.
- Bank statements, canceled checks, or electronic transfer records showing each person’s contributions toward mortgage payments, property taxes, and insurance.
- The closing disclosure, which lists each person’s share of the purchase price, closing costs, and any points paid.
- Contractor invoices and proof of payment for any capital improvement, noting which co-owner paid.
- A copy of the recorded deed showing the ownership structure and percentages.
If you share a joint bank account for housing expenses, keep records of each person’s deposits into it. A single joint account with no trace of individual contributions makes it nearly impossible to prove who paid what if the IRS asks. Paying from separate accounts is the cleanest approach, even if it takes a little more coordination each month.
What Happens When You Sell
When co-owners sell, each person reports their share of the transaction on their own return. Sale proceeds are split according to the ownership percentages on the deed, not by who paid more toward the mortgage over the years. A tenant in common who held 60% interest reports 60% of the gross sale price.
Your individual tax basis starts with your proportional share of the original purchase price, including your share of closing costs like title insurance, recording fees, and transfer taxes. Add the cost of any capital improvements you personally funded. Improvements are upgrades that add value or extend the home’s useful life: a new roof, kitchen remodel, added bathroom, central air, a new deck. Routine maintenance like painting, fixing leaks, or replacing broken hardware does not count.8Internal Revenue Service. Publication 523, Selling Your Home When both co-owners shared the cost of an improvement, each adds their paid share to their own basis.
Each co-owner can exclude up to $250,000 of capital gain from taxable income when selling a primary residence, so two unmarried co-owners can potentially shelter up to $500,000 of combined profit. To qualify, each person must independently meet two tests: they must have owned the home and used it as their principal residence for at least two of the five years before the sale.9Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence Eligibility is evaluated separately for each co-owner. If one person moved out early and fails the use test, that person owes capital gains tax on their share while the other can still claim the full exclusion.
Each co-owner reports their portion of the sale on Form 8949, listing their share of the proceeds and their individual basis, with the gain or loss flowing to Schedule D.10Internal Revenue Service. Instructions for Form 8949 (2025) If Form 1099-S at closing shows the full sale price, report the full amount in the proceeds column and adjust your basis and gain to reflect only your ownership share.