How Should Cohabiting Couples Handle Taxes and Shared Expenses?

Cohabiting couples—partners who live together but aren’t legally married—face a mixture of everyday money decisions and specific tax rules. Because federal taxes treat most cohabiting partners as unmarried individuals, couples must plan both household budgeting and year-end tax filing with that reality in mind. Below is a practical, step-by-step guide that covers filing status, credits and deductions, shared accounts, property ownership, recordkeeping, and legal protections.

Filing status and basic tax rules

Filing as single or, if eligible, head of household. Unmarried partners file separate tax returns; the usual options are Single or, if one partner qualifies with a dependent, Head of Household. See IRS Publication 501 for details on who qualifies as Head of Household (IRS: Publication 501, 2025).
Common-law marriage exception. If a state recognizes common-law marriage and the couple’s relationship meets that state’s requirements, the IRS treats the couple as married for federal tax purposes. Verify your state rules and confirm with the IRS guidance “Are You Married?” (IRS.gov).
Dependents and credits. Only one person can claim an eligible dependent on a federal return per tax year. If both partners share caregiving, use the IRS tie-breaker rules and custodial parent rules (IRS: Dependents guidance). Credits like the Child Tax Credit, Earned Income Tax Credit (EITC), and some education credits are claimed by the individual who qualifies under IRS rules.
Marketplace and health subsidies. Marketplace (Premium Tax Credit) and Medicaid eligibility may depend on household composition and tax filing. Marketplace rules treat unmarried adults separately; consult Healthcare.gov for how household rules affect premium tax credits.

Authoritative sources: IRS main pages on filing status and credits (irs.gov) and Healthcare.gov for premium tax credit rules.

Practical rules for shared expenses

Choose a fair split method. Common approaches:
50/50 split (simple but may feel unfair if incomes differ).
Proportional split (each pays a percentage of income toward shared costs). Example: Partner A earns $5,000/month, Partner B $3,000. Combined income $8,000; A pays 62.5% of shared costs, B 37.5%.
Expense-by-expense allocation (one pays rent, other utilities and groceries) — works when both partners agree and track value.
Set up a joint household account for shared bills. Put agreed contributions into a shared account for rent, utilities, groceries, and subscriptions. Keep separate personal accounts for discretionary spending and retirement savings to preserve financial independence.
Track contributions and reimbursements. Use a shared spreadsheet or budgeting app to record who paid what and when. Good records reduce disputes and provide documentation if questions arise later about ownership or tax deductions.
Consider short-term equalizing transfers. If one partner intermittently covers extra costs, the couple can reconcile monthly via transfers into the joint account rather than continuous resentment.

For budgeting tactics and fair rules for couples, see FinHelp’s guide on Budgeting Together: Fair Rules for Couples with Different Incomes. For dual-income coordination, see Budgeting for Dual-Income Households: Division and Coordination.

How to treat specific tax-relevant shared expenses

Rent: Federal tax law generally does not allow renters to deduct rent for a primary residence. Some states offer renter credits—check state tax rules.
Mortgage interest and property tax: When co-owners both appear on the mortgage and title, both can deduct their portion of mortgage interest and property taxes they actually paid, provided they itemize and the ownership/payment split is documented (IRS: Publication 936, Mortgage Interest Deduction).
Home office expenses: If one partner qualifies as self-employed and uses part of a shared residence exclusively for business, that partner can claim home office deductions for their share based on square footage and expense allocation (IRS home office guidance). Keep careful records.
Medical expenses and other itemized deductions: Deductions are claimed by the individual who paid the expense and meets the itemizing threshold. For shared payments, document who paid and how much if deductions are claimed.
Childcare expenses: Only the taxpayer who pays and who meets eligibility rules can claim the Child and Dependent Care Credit. If both partners share payments, decide who will claim the credit and keep receipts. See FinHelp’s How to report shared childcare expenses on your taxes for examples.

Credit, debt, and ownership risk

Joint accounts and shared credit lines. Adding a partner to a bank account or credit card makes both parties legally responsible (and affects credit scores). Opening joint loans can expose each partner to the other’s credit behavior.
Co-signing and mortgages. Co-signing or joint mortgages can increase ability to buy property but also mixes financial risk. Use written agreements or title percentages to specify ownership versus who paid what.
Protecting individual credit. Maintain at least one credit line or account in your own name. Monitor credit reports to detect unauthorized activity.

Legal protections and end-of-relationship planning

Cohabitation agreement. A written cohabitation or household agreement clarifies how property, shared savings, and debts will be handled if you separate. It doesn’t have to be complex—lay out contributions, ownership percentages, and how proceeds will be split on sale.
Wills, beneficiary designations, and powers of attorney. If you want the partner to inherit or to make medical/financial decisions, name them in your will, on account beneficiaries, and with healthcare or financial powers of attorney.
State law differences. Rights for unmarried partners vary widely by state; some recognize domestic partnerships or common-law marriage. Consult an attorney for state-specific estate and property planning.

Recordkeeping best practices

Keep receipts and labeled bank records for any potentially deductible shared expenses or big purchases.
When buying property together, keep a payment ledger showing each partner’s contributions to down payments, improvements, and mortgage payments.
For business use of the home or home-office deductions, keep a contemporaneous log of square footage and business time.

Example scenarios (short, practical)

1) Renting, unequal incomes: Partners split shared bills proportionally to income. They each keep separate retirement accounts and contribute to a joint account set to cover 3 months of combined rent as an emergency buffer.

2) Buying a house together: Partners execute a written agreement that states ownership percentages (e.g., 60/40) and explains how sales proceeds will be divided after repayment of shared debts and reimbursement for improvements.

3) Parenting and taxes: The custodial parent claims the child as a dependent; the noncustodial parent agrees in writing if custody swaps or other arrangements apply. Keep custody records and IRS tie-breaker considerations in mind.

Year-end tax checklist for cohabiting couples

Confirm filing status (Single or Head of Household if eligible).
Decide who will claim which deductions or credits and document receipts.
Collect proof of mortgage interest/property tax payments if you own together.
Reconcile joint-account contributions and prepare documentation if one partner will claim business or home-office expenses.
Review beneficiary designations on retirement accounts and life insurance.

When to get professional help

Complex property ownership or high-value assets. A tax advisor can help structure deductions and ownership so the right shares are deductible and consistent with tax law.
State-specific issues like common-law marriage, domestic partnership benefits, and estate planning.
Disputed contributions or possible liability from joint debt.

Consult a CPA or tax attorney for personalized advice. For general consumer-facing information about living together and legal/financial protections, see the Consumer Financial Protection Bureau (CFPB) resources on cohabitation (consumerfinance.gov).

Key takeaways

Unless recognized as married under state law, cohabiting couples file individual tax returns; tax credits and deductions are generally claimed by the person who qualifies and who paid the expense.
Use clear, written agreements about splitting costs, ownership, and responsibility for debts to avoid future disputes.
Keep organized records for any shared payments that could affect taxes—mortgage interest, property taxes, business expenses, or childcare.
Protect yourself with basic estate planning documents and consider a cohabitation agreement when assets grow or if you have children.

Professional disclaimer: This article is educational only and not tax, legal, or financial advice. For advice tailored to your situation, consult a licensed CPA, tax attorney, or financial planner. Authoritative sources used in this article include the Internal Revenue Service (IRS) (https://www.irs.gov) and the Consumer Financial Protection Bureau (CFPB) (https://www.consumerfinance.gov).

How Cohabiting Couples Should Handle Taxes and Shared Expenses