Actually on old topic on HOH

Technical topics regarding tax preparation.
#1
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Girlfriend and kid move in with boyfriend. Boyfriend owns the home free and clear. Boyfriend could rent the place for $3000 a month.

Girlfriend wants to claim head of household. She pays no rent. How does the fact that the boyfriend provides free rent impact her ability to claim head of household?

This is driving me nuts. She claims that she pays all utilities and food for all three, and clothing and all else for herself and child. Just seems that the free rent has to have some sort of impact on her paying more than half of the household expenses, must fit into the equation somehow.

Help.
 

#2
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Fillout worksheet 1: https://www.irs.gov/publications/p501#e ... 1000220796

Only utilties and food will count for her. Not clothing etc.

If the total amount you paid is more than the amount others paid, you meet the requirement of paying more than half the cost of keeping up the home.

Costs you include. Include in the cost of keeping up a home expenses such as rent, mortgage interest, real estate taxes, insurance on the home, repairs, utilities, and food eaten in the home.
Costs you don't include. Don't include the cost of clothing, education, medical treatment, vacations, life insurance, or transportation. Also, don't include the rental value of a home you own or the value of your services or those of a member of your household.
 

#3
Frankly  
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Under proposed reg 1.2-2(d) fair rental value can be used as an expense instead of mortgage interest, insurance and property taxes. Both can't be used. This might help him if he was trying to qualify and the FRV was more than insurance and property taxes. It doesn't help her though.
 

#4
CathysTaxes  
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I've been following what Frank is suggesting. I do use this method for determining support. FMV of rental is the fairest way. Some people have outrageous mortgages as the result of bad financial planning and some people have paid off or most of their mortgage.
Cathy
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#5
novacpa  
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Have your ruled out "bartered" income?
 

#6
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Thanks for all input. But again, I am concerned about the free rent the girlfriend is getting. She wants to claim head of household, so she needs to pay for more than half the cost of keeping up the home.

The home can be rented for $3000 a month. So since the boyfriend is providing the home free of rent to his girlfriend and her child, isn't he essentially providing $3000 a month to the cost of keeping up the home? Which means the girlfriend would need to pay more than $3000 a month in order to pay for half the cost of "keeping up the home." She doesn't come close to paying this much a month.

Does anyone agree with me on this point?

The difference in girlfriend's taxes is over $6000 federal and state, between filing single and HOH. Not chump change. Which is why I am trying to make a clear determination here.
 

#7
CathysTaxes  
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I don't think she qualifies for head of household.
Cathy
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#8
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Thanks CathysTaxes. I needed that appreciation.
 

#9
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I mistakenly wrote "appreciation" in my last post. I meant "I needed that confirmation." Thanks again.
 

#10
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CathysTaxes wrote:I don't think she qualifies for head of household.


FWIW, I've been doing taxes and have been a student of them for some time..... and I agree.

The IRS filing status web page asks, "did you pay for more than half the cost of keeping up a home in which you lived".

I don't think she did.
 

#11
CathysTaxes  
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Plus now we have to certify HoH and if incorrect, I believe the fine is $500. Not worth trying to be creative.
Cathy
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#12
Frankly  
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CathysTaxes wrote:Plus now we have to certify HoH and if incorrect, I believe the fine is $500.
The penalty is for not doing one's due diligence, not because the HoH status is later determined to be not correct. Until you have a completed "Cost of Keeping Up a Home" worksheet or something similar and reviewed it with the TP it would be premature to make a determination.

What the woman actually pays is the numerator to the fraction of the total household costs denominator. Household costs includes the costs for everyone living in the house and no costs that are unique to one person.

The reg clearly states that mortgage interest and property taxes are part of the costs. The proposed reg clearly states that fair rental value may instead be used in the calculation. If the house is paid off the interest plus property taxes may be less than the fair rental value. Under the proposed reg, adding $3,000 cost to the denominator will reduce the fraction of the costs she pays.
 

#13
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Are you saying, for example, that if a taxpayer lives in a house with no mortgage, that they could include the FMV of the rent or mortgage as being "paid" toward the cost payed to maintain the household?

And if the house is owned by the taxpayers boyfriend, then she can claim the FMV of rent not really paid to him as a "paid" cost?
 


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