Owning a property offers several benefits to Santa Cruz residents, including certain tax advantages. Chief among these advantages is the opportunity to claim deductions related to the expenses of ownership. Deductions do tend to get slightly more complicated, however, when a property is co-owned. Thus, prior to purchasing a property with another party (that is someone other than one’s spouse), one should sit down with all of those who will have a stake in it to research the tax considerations related to ownership.
One of most common ownership deductions is that of interest paid on a mortgage. Federal regulations do allow one to deduct mortgage interest paid on real estate for which he or she is the legal or equitable owner. According to The Tax Advisor, establishing equitable ownership requires that one show that he or she:
- Can legally possess the property and enjoy the benefits of any rents or profits it produces
- Is obliged to maintain the property
- Is obliged to insure the property
- Is obliged to pay taxes and assessments for the property
- Shares the risk of losses incurred from the property
With both mortgage insurance and other common deductions such as property taxes, one can only deduct the portion of them that he or she pays. The same holds true of rental properties, which (per information shared by Zacks Financial Research) offer additional deductions such as expenses related to repairs and maintenance. Many often confuse their portion of deductible expenses with either the portion of the property they own or (in the case of rental property) the portion of the rental income they report. However, those that do this could reasonably be over-reporting, as their stake percentages rarely match the portion of expenses they actually paid.