Real estate/Cohabitating question

[texaskj]

Person 1 owns (with the mortgage company) a house. Person 2 is going to move in. They are not married and both in their 40s. Person 1 does not have an escrow account and pays homeowner's insurance once a year and property taxes twice a year. How do you think the costs should be split? Should person 2 pay half of the insurance and/or taxes? Should person 2 pay any of the taxes or insurance?

 

[Shoopy]

Do you mean like for tax purposes? Or just in general?

I'm not a tax expert despite studying accounting. It was hands down my worst subject so take this at face value. I believe that if you are not on the home's mortgage, you cannot claim the property taxes on your own taxes.

If you mean in general, there really isn't a "should" answer. It completely depends on what the couple feels more comfortable with. When my FI and I had split accounts, we split everything 70/30 because he only brought in 30% of the income so it wasn't fair to ask for half. Now that we have joint accounts, we don't think of it all. The money is our money and both bill payments and leisure money comes out of one account.

ETA: if that were me in that situation, I would consider property insurance and tax as a bill and split accordingly. I realize that's easier done with an escrow account (would he consider one? I prefer escrows because it doesn't tie your cash up. Free cash flow and all that jazz)

 

[texaskj]

Whoops, I should've asked more specifics. Not for tax purposes, just in general. My feelings are that person 1 should pay the property taxes since they're writing them off the income taxes and they are building the equity in the house. I think person 2 should pay part?...half? of the homeowner's since their stuff is being covered with the policy. Oh and just for arguments sake, let's say they make about the same amount a year.

 

[Shoopy]

That makes sense to me Texas.

 

[kenny]

Are these two people roommates or SOs?

If roommates it is simple.
The renter should pay whatever the going rate is.

If they are SOs is more complicated.
People vary.
Some expect to pay half going forward and own what was brought into the relationship.
Some don't.
If you make similar money it's easier.
If you have very different incomes you have more talking to do.
Each couple has to work this out.
Also look into your state laws about this.

 

[MissStepcut]

I think person B should pay around market rent for similar living circumstances. Getting into what one party should or shouldn't pay on the criteria you're talking about is problematic, because person A is gaining from the equity. Better to look at it from the perspective of the market value of the housing than at the costs to person A.

 

[Tacori E-ring]

I agree with Kenny. It depends on the relationship. Here in NC, there is something called rights of survivorship where if person 1 and 2 are SOs person 2 can be placed on the deed even if (s)he is not on the mortgage and even if they are not married. If I was paying 50% of EVERYTHING I would want a claim in the house. Otherwise I don't think even half of the mortgage is a fair deal (unless that is what the going rate for renting a room in a house is).

 

[NewEnglandLady]

I think Person 1 and Person 2 should decide on a monthly amount that they are both comfortable with. Essentially, rent. Then Person 1 can decided what he/she wants to do with that monthly rent--whether it goes toward the mortgage, property taxes, insurance or a combination of all three is up to Person 1.

 

[tyty333]

I agree with MissStepCut and NEL...person 2 should pay whatever the going rental rate. Person 1 can do whatever they
want with the money (pay mortgage, taxes, HOA fees, whatever). It gets to complicated when you try to break it down
too much and there are things that are difficult to account for like person 1 building equity in the home.

 

[texaskj]

Thanks all, for letting me pick your brains. You are right; I've been making this way too complicated.