Unmarried Cohabitants: Tax Considerations and Shared Expenses

Quick answer

Unmarried cohabitants must file as individuals and cannot file a joint federal tax return. Key considerations include choosing the correct filing status, documenting who paid what, understanding who can claim credits or dependents, and checking whether state or local law recognizes domestic partnerships. Good documentation and a written agreement about shared expenses significantly reduce disputes and IRS risk.

Filing status: who files as what

• Federal: Unmarried partners each file their own federal return. The typical choices are Single or, if they meet rules, Head of Household (HoH). HoH can produce a substantially lower tax liability than Single, but it requires qualifying dependents and that one partner paid more than half the cost of maintaining the household (see IRS guidance on filing status) (IRS: Filing Status, https://www.irs.gov/filing).
• State: Some states recognize domestic partnerships or register cohabitants; residency and state rules can change tax liabilities (see state tax departments).

In my practice I’ve seen couples miss HoH because they assumed shared expenses disqualified them; the IRS looks at who paid more than half the household costs, not whether both contributed.

See FinHelp posts on Filing as Head of Household: Eligibility and Potential Savings and Choosing the Right Filing Status for Complex Household Situations for scenarios and worksheets.

Documentation and allocating shared expenses

Why it matters: deductions and credits often depend on who actually paid an expense. Treat these steps as a financial control system rather than a legal argument:

• Use joint statements or a shared spreadsheet to record contributions to rent/mortgage, utilities, repairs, property taxes, and insurance.
• Keep receipts and bank/credit card records that match the claimed expense on your tax return.
• If one partner’s name is on the mortgage or deed, that partner generally claims mortgage interest and property tax deductions unless there is a clear legal or documented arrangement showing otherwise.

Example from practice: a renter and homeowner couple documented the non-owner’s share of qualified home office expenses and reimbursed the owner via a documented cost-share. The renter used the proportional deduction correctly for business use; the owner still claimed mortgage interest. Documentation avoided an IRS inquiry.

Further reading: Allocating Tax Credits Within a Household: Practical Examples.

Dependents, credits, and who claims what

• Child-related credits: Only one taxpayer can claim a dependent on a single tax year. The tie-breaker rules (IRS) resolve disputes — usually the custodial parent has priority. If parents share custody, a written agreement and Form 8332 (if releasing claim) may be needed (IRS: Dependency Exemptions and Credits, https://www.irs.gov/credits-deductions).
• Other credits: Education credits, the Earned Income Tax Credit (EITC), and some refundable credits depend on household composition, income, and who paid qualifying expenses.

If you share caregiving duties, plan early which partner will claim the dependent and document the arrangement in writing. This minimizes later conflict and audit risk.

Property ownership, mortgages, and capital gains

• Title vs. payment: Ownership on title usually determines tax reporting for mortgage interest, property taxes, and later capital gains. Payment of mortgage by a non-owner does not automatically confer ownership or entitlement to deductions.
• Selling a shared home: If both partners are co-owners, each may qualify for the primary residence exclusion of up to $250,000 of gain ($500,000 if married filing jointly) if ownership and use tests are met (IRS: Sale of Your Home, https://www.irs.gov/taxtopics/tc701).

Practical point: Consider a written co-ownership agreement that specifies cost shares, ownership percentages, and a buyout method to reduce conflict at sale or separation.

Gifts and transfers between partners

Unmarried partners do not benefit from the unlimited marital gift and estate tax exemptions. Gift tax annual exclusions are indexed for inflation; for recent years this has increased (check the current IRS annual exclusion before planning). Large transfers (or series of transfers) may require filing Form 709 (United States Gift (and Generation-Skipping Transfer) Tax Return) (IRS: Gift Tax, https://www.irs.gov/businesses/small-businesses-self-employed/gift-tax).

In practice I advise clients to use the annual exclusion for straightforward reimbursements and to structure larger transfers through loans or documented buyouts to preserve clarity.

Health insurance, FSAs, HSAs, and employer benefits

• Employer-sponsored health plans: Many employers allow domestic partners on family coverage; tax treatment (pre-tax vs. imputed income) varies. If the employer treats your partner as a non-dependent, the value of coverage may be taxable to the employee (consult HR and plan documents).
• FSAs/HSAs: Contributions and eligible reimbursements depend on who is covered on the plan and on tax filing status and dependent status.

Confirm plan rules and request written confirmation of how your employer reports coverage for tax purposes.

State and local considerations

• Domestic partnership registration can affect local rights and benefits (e.g., state tax filing, community property rules in a few jurisdictions, health benefits).
• Community property states can complicate income allocation for unmarried couples who are not married — generally community property laws apply only to married couples, but local rules can affect how assets acquired during cohabitation are treated.

Always check your state tax authority or a local tax advisor.

Breakup, death, and estate planning

• Without marriage, a surviving partner may have no automatic inheritance rights. Use wills, beneficiary designations, and powers of attorney to protect the non-owning partner’s interest.
• Consider joint tenancy or title arrangements for property where appropriate, and review beneficiary designations on retirement accounts and insurance policies.

I regularly tell clients: an inexpensive estate checklist and two targeted legal documents often prevent expensive litigation later.

Practical checklist for unmarried cohabitants (actionable steps)

1. Decide and document who pays what for rent, mortgage, utilities, repairs, and major improvements. Use dated records.
2. Review title to real estate and understand who claims mortgage interest and property tax.
3. Choose filing status early in the year and track who will claim dependents or credits.
4. Ask HR for written confirmation of how partner coverage is taxed under your employer’s plan.
5. Consider a simple cohabitation or co-ownership agreement and basic estate documents (will, health care proxy, durable power of attorney).
6. Consult a tax professional before large gifts or transfers; check the current IRS gift tax annual exclusion.

Common mistakes to avoid

• Assuming joint filing rights or married-only deductions.
• Mixing records so contributions can’t be traced to an individual.
• Forgetting to update beneficiary designations after moving in together.

Short FAQs

• Can cohabitants file jointly? No — federal tax law does not allow joint returns for unmarried partners. (IRS: Filing Status)
• Who claims the child tax credit? The parent with the qualifying child for that year — tie-breaker rules apply. (IRS: Child Tax Credit)
• Are gifts between partners taxable? Routine gifts below the annual exclusion are not taxable to the donor, but larger gifts may require Form 709.

Sources and further reading

• IRS — Filing Status and related topics: https://www.irs.gov/filing
• IRS — Gift Tax: https://www.irs.gov/businesses/small-businesses-self-employed/gift-tax
• Consumer Financial Protection Bureau — guidance on shared finances: https://www.consumerfinance.gov
• FinHelp articles: Filing as Head of Household: Eligibility and Potential Savings, Allocating Tax Credits Within a Household: Practical Examples, Tax Filing Options for Unmarried Couples.

Professional disclaimer: This article is educational and based on professional experience. It is not personalized tax advice. Laws and IRS rules change; consult a qualified tax advisor or attorney to make decisions for your situation.