Taxes on Co-Owned Real Property
When property is jointly owned, there are specific tax rules set forth by the IRS and the United States court system. You can learn more about how taxes of co-owned real property are governed below.
Where a taxpayer is not 100% owner of property on which a deductible tax is paid, deductibility of the tax that was paid depends on the form of joint ownership. Some forms of joint ownership entail joint and several liability on the part of each owner for taxes on the property. Where there is joint and several liability for a tax, the tax may be deducted by the one who pays it.
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In Conroy, Thomas, (1958) TC Memo 1958-6, a father and daughter owned property as tenants in common., The father’s payment of the whole property tax bill was fully deductible since each owner has equal liability for the whole tax bill.
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Where a court wasn’t able to determine whose funds were used to make the tax payment, each party was entitled to one-half of the deduction (Finney, Barbara, (1976) TC Memo 1976-329).,
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Where tenants in common don’t have joint and several liability for a tax, each tenant is entitled to deduct only his/her proportionate share of the tax.
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Where a taxpayer and his mother owned property as equal tenants in common, and local law (PA) obligated the taxpayer to pay only his share of the real estate taxes on the property, he could deduct only his share even though he paid all the taxes (James, Joseph J., (1995) TC Memo 1995562).
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Other cases indicate that a taxpayer will be allowed to deduct only his proportionate share of taxes on co-owned property, where he paid all of those taxes, but had a right to be reimbursed by the other co-owners for the latter’s proportionate shares of the taxes owed (e.g., Smith, John (1955, DC NH) 48 AFTR 615).
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When a co-tenant pays all (or a part) of taxes on co-owned property to avoid personal liability or to preserve his/her interest in the property, he/she is entitled to a deduction for the full amount of the payment (James, Joseph J., (1995) TC Memo 1995-562).,
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In Powell, Lulu, (1967) TC Memo 1967-32, the court felt that the taxpayer had a beneficial interest in the entire property (right to occupy) and the payment was needed to protect this interest, even without joint and several liability.
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Movius, Mary Est, (1954) 22 TC 391 states that a taxpayer who owns a beneficial interest in property and pays taxes on it to protect that interest, may deduct the payment even though legal title is in someone else’s name and the tax is assessed against the latter.,
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Applying “substance over form,” the Tax Court in Lang, Judith F, (2010) TC Memo 2010-286, held that real estate tax payments made by a mother to a local government on behalf of her daughter were deductible by the daughter. The payments were considered gifts to the daughter who then transferred them to the tax agency, even though the mother had made the payments directly to the government. Since the mother didn’t claim a deduction for them, and wasn’t eligible to deduct the taxes because they were not imposed on her, there was no chance of double deduction.