Taxes for Unmarried Couples

Unlike married couples, unmarried couples can't file joint returns. This can help you or hurt you depending on how your income falls in with the “marriage tax penalty” (see Chapter 14). However, this also means that you can't claim your partner as a dependent.

For a comprehensive guide to the legal and financial implications of living together, see Living Together: A Legal Guide for Unmarried Couples by attorneys Ralph Warner, Toni Ihara, and Frederick Hertz, available from ( Click on Search and type in the keywords “Living Together Guide.”

Home Mortgage Interest Deduction

When you own a house together, the issue of who will get to claim the mortgage interest and property tax deductions for federal income tax return purposes has to be addressed. You could split the deductions in half, but you might not benefit as much from this method if one of you makes significantly more than the other, because the deductions will create more tax savings for the person with the higher tax rate. It might make more sense to let that person claim the entire deduction and compensate the other person in some monetary way.

Head of Household and Earned Income Tax Credit

If a dependent child lives with you and your unmarried partner at least six months a year, and you provide more than 50 percent of the cost of maintaining the household, you can claim head of household status on your income tax return. This allows you to take the child and dependent care credits to reduce your taxes. See IRS Publication 17 for detailed information on the “head of household” status and a checklist to see if you're qualified to claim it.

If your income is below the limit, you can also take the earned income tax credit, which offsets your income tax liability and can sometimes supplement your income by allowing you to get back more than you actually paid. If you have a dependent child living with you, you may want to consult a tax accountant before filing your income tax returns.

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