Tax Considerations for Unmarried Couples Sharing Finances

Introduction

Unmarried couples who share finances must navigate tax rules that differ from those that apply to married taxpayers. These differences can affect filing status, eligibility for credits and deductions, and how jointly owned property and shared expenses are reported. In my experience advising clients for over a decade, clear record-keeping and a simple allocation plan for shared expenses are the most effective ways to prevent disputes and IRS headaches.

Key takeaways (quick view)

• You cannot file a joint federal tax return if you are not legally married (IRS, Publication 501).
• One partner — generally the person who provides the majority of support or with whom a child lives — may claim dependents and related credits.
• Ownership, documented contributions, and state law determine who can take mortgage interest, property tax, or capital gains benefits.
• Some states recognize domestic partnerships for state taxes; federal rules still treat partners as unmarried.

Filing status: what options do unmarried couples have?

Unmarried individuals generally file as Single. There is a second option that may apply: Head of Household (HoH). To file as Head of Household, a taxpayer must meet IRS rules such as being unmarried on the last day of the tax year, paying more than half the cost of keeping up a home, and having a qualifying person (for example, a dependent child) live with them for more than half the year (IRS Publication 501). If both partners live together and share household costs, only the partner who meets the HoH criteria can claim that status.

See also: FinHelp’s guides on choosing filing status and filing status changes for blended or complex households: “Choosing the Right Filing Status for Complex Household Situations” and “Filing Status Checklist for Blended Families.” These practical resources explain documentation and decision points when two adults share a home.

Dependents, child-related credits, and who claims them

When a couple has children, determining which partner claims a child as a dependent is often the most important tax decision. The IRS uses a residency test, relationship test, support test, and tie-breaker rules when more than one person tries to claim the same child (IRS Publication 17 and Publication 501).

• Generally, the parent with whom the child lives the majority of the year is the custodial parent and is entitled to claim the child as a dependent and related credits. The custodial parent can release the claim to the noncustodial parent only via Form 8332 (for certain credits) or a signed declaration.
• The Child Tax Credit, Additional Child Tax Credit, and Earned Income Tax Credit each have specific rules. For example, the EITC eligibility depends on filing status and income thresholds; married couples must usually file jointly to claim certain credits at higher thresholds.

Documentation tip: Keep school records, medical records, or other dated proof of where a child lived during the year to support a dependent claim in case of an IRS inquiry.

Deductions and credits: what changes for unmarried couples

Because unmarried partners file separately, they miss certain tax features that apply only to married filing jointly returns (for example, some income thresholds and phaseouts). That said, unmarried filers can still claim many deductions and credits individually if they qualify.

Common items that require careful allocation or documentation

• Mortgage interest and property tax deductions: Only the person who is legally liable on the mortgage or who actually paid the expense can generally claim the deduction. If both names are on the mortgage but only one partner pays, keep bank records showing who made payments. If partners split payments, allocate interest and taxes proportionally and record the allocation on your own tax records.
• Itemized deductions: Couples who live together but file separately must coordinate whether to itemize or take the standard deduction. If one partner itemizes, the other may be required to do so as well under certain rules (this typically applies to married filing separately filers; for unmarried filers, each person chooses independently, but shared expenses should be allocated).
• Retirement accounts: Contributions to IRAs or employer plans are based on each individual’s income and eligibility. An unmarried partner cannot use the other’s earned income to claim a spousal IRA contribution.

Property ownership, capital gains, and sale of a home

Ownership form matters. If both partners are on the deed, capital gain on the sale of a primary residence is split according to ownership percentage and who used the home as their primary residence. Only individuals who meet the two-out-of-five-year use and ownership tests can exclude up to $250,000 ($500,000 for married filing jointly, which unmarried couples cannot claim) of capital gain on the sale of a primary residence (IRS Topic: Sale of Home). This difference highlights a key advantage that married couples may have for home-sale tax treatment.

Real-world example from practice

I worked with two partners who co-owned a home but never married. They planned to sell and were concerned about capital gains. Because neither met the married exclusion, each could exclude up to $250,000 of gain only if they individually met the ownership and use tests. We reviewed residence timelines and ownership records, confirmed how each partner paid mortgage and improvements, and documented allocations so their capital gain exclusion positions were clear to their tax preparers.

State taxes and domestic partnerships

Some states recognize domestic partnerships, civil unions, or offer specific rules for unmarried couples that can affect state tax liabilities, health benefits, and inheritance rights. These state-level recognitions do not change federal filing rules; partners still file federal returns as unmarried. Check state tax guidance or Consumer Financial Protection Bureau resources for state-specific protections and how they may affect filing (ConsumerFinance.gov). Local state tax agencies will have the definitive state rules.

Shared accounts, gifts, and informal transfers

If partners transfer money between accounts, gifts may be implicated. For 2025, federal gift-tax annual exclusion rules remain in place; however, routine transfers between romantic partners who are not spouses should still be documented to show intent (gift vs. shared expense) and origin of funds. Large transfers can trigger gift-tax reporting obligations for the donor (see IRS Gift Tax rules). Keep clear records when one partner pays household expenses on behalf of another.

Avoiding common mistakes and red flags

• Don’t assume joint ownership equals tax benefit. Ownership and who pays the expense determine the tax claim.
• Avoid informal agreements without written documentation. If your strategy requires one partner to claim a dependent or deduction, put the agreement in writing and keep supporting records.
• Watch for duplicate claims. If both partners try to claim the same dependent or the same mortgage interest, the IRS may flag the returns and request proof.
• Keep a simple ledger of shared expenses. A small spreadsheet that tracks who paid for mortgage, utilities, groceries, childcare, and repairs will save time and prevent disputes.

Practical strategies and best practices

1. Start with a shared budget and a written agreement describing who pays what and which partner will claim specific tax items each year. A written record improves clarity and can be useful if the IRS asks for proof.
2. Use a joint account for common bills and keep separate accounts for personal spending. Reconcile the joint account monthly.
3. Document all contributions to property—who paid for the down payment, who paid for improvements—because these affect basis and potential capital gains calculations.
4. Review tax credits and filing status annually. Changes in income, household composition, or state laws can change which strategy is best.
5. Consult a qualified tax professional, particularly when you have children, co-own real estate, or plan large financial transfers.

Internal resources

• For more on how filing status affects household tax choices, see FinHelp’s article: “Choosing the Right Filing Status for Complex Household Situations” (https://finhelp.io/glossary/choosing-the-right-filing-status-for-complex-households/).
• For a checklist on filing status when family structure is blended or changes mid-year, see: “Filing Status Checklist for Blended Families” (https://finhelp.io/glossary/filing-status-checklist-for-blended-families/).

Frequently asked questions

Q: Can an unmarried partner claim medical expenses paid for the other partner?
A: Generally no—medical expense deductions are limited to the taxpayer’s qualifying medical expenses and those of a dependent. If you treat your partner as a dependent (and they qualify), you may include their qualifying expenses. Routine transfers for living expenses do not make someone your dependent for tax purposes.

Q: If we split mortgage payments evenly, can we each deduct half the interest?
A: If both names are on the mortgage and deed and each partner actually paid half the interest, you can each deduct the portion you paid. Keep bank records that show who made each payment. If only one person is legally responsible for the mortgage, consult your tax preparer before allocating deductions.

Q: Do domestic partnership registrations affect federal taxes?
A: No. State-level domestic partnership recognition does not change federal filing status. Partners still file federal returns as unmarried unless they are legally married.

Authoritative sources and further reading

• IRS Publication 501, Dependents, Standard Deduction, and Filing Information: https://www.irs.gov/publications/p501
• IRS Topic: Sale of Home — capital gains and exclusions: https://www.irs.gov/taxtopics/tc701
• Consumer Financial Protection Bureau: resources on cohabitation and finances: https://www.consumerfinance.gov

Professional disclaimer

This article is educational only and does not constitute tax, legal, or financial advice. Tax law is complex and facts matter. For personalized guidance based on your situation — especially when children, real estate, or large assets are involved — consult a qualified CPA or tax attorney.

Conclusion

Unmarried couples who share finances can minimize tax risk with clear documentation, thoughtful allocation of deductions and credits, and regular reviews of state and federal rules. Small actions—keeping receipts, tracking who pays what, and getting a written agreement—often prevent the largest tax problems down the road.