Moving out doesn’t remove their ownership
If you both are on the deed, your partner retains their ownership interest, even after moving out. You’re still co-owners, even if your partner lives elsewhere. However, where your partner lives affects occupancy, which can impact certain tax benefits.
Who can claim the mortgage interest tax deduction?
If one person continues living in the home as a primary residence, you both may be eligible for the mortgage interest tax deduction and property tax deductions.
- Mortgage interest deduction: Each owner may be able to deduct the qualifying mortgage interest they paid if they’re legally responsible for the mortgage and itemize deductions.
- Property taxes: Each owner may be able to deduct qualifying property taxes, subject to the state and local tax (SALT) deduction limit.
If you use the standard deduction rather than itemize, you’re usually ineligible for the separate mortgage interest or property tax deductions.
What if we decide to rent out the property?
If you both decide to rent out the home, you’re required to report the rental income and expenses. As co-owners of the home, you’ll divide the rental income and deductible expenses based on your share of ownership. If you both own 50% of the home, you’d split the earnings and expenses in half.
Rental expenses may include mortgage interest, property taxes, insurance, repairs, and depreciation.
If one person rents out the property and the other continues to live there, taxes can be more complicated. You still need to report rental income and expenses, but the expenses will need to be prorated based on the portion of the home being rented versus the portion being used as a personal residence.
What if we decide to sell the home?
If you sell the home or transfer ownership, you may be subject to capital gains taxes.
Eligible homeowners can exclude up to $250,000 in capital gains from the sale of a primary residence. Typically, you must have owned and used the home as your primary residence for at least two years out of the last five leading up to the date of the sale.
As unmarried partners, you’re taxed separately, and each owner must independently qualify for the exclusion. If one person moves out, that person could lose their eligibility under the residency requirement.
If your former partner buys out your share, the sale could be a taxable transaction.
Does moving out affect filing status?
It can if you currently file as Head of Household (HOH). To qualify for HOH status, you typically have to pay more than half the cost of maintaining a home for a qualifying person, such as an eligible child, who lives with you for more than half the year. If moving out means you no longer meet that requirement, you lose your HOH eligibility and must file as Single. Moving out does not affect filers who already file as Single.
Even if an unmarried partner qualifies as a dependent, they cannot qualify you for Head of Household.
Be clear on financial agreements
If you continue to co-own the home, document who pays the mortgage, property taxes, insurance, and maintenance costs. Keep detailed records of any payments or expenses, and maintain written agreements about ownership, rental income, or a future buyout.
