Taxpayers qualifying as head of household for Internal Revenue Service purposes enjoy lower tax rates and a higher standard deduction than other taxpayers. However, one of the IRS requirements seems to preclude each of two single adults who share a single house declaring head of household status. To clarify the IRS position, its Assistant Chief Counsel released a memorandum dealing with the issue.
Attributes of Head of Household
To qualify as "head of household," you must meet several IRS requirements. Most are straightforward. You must be "considered unmarried" on the last day of the year and file an individual, rather than a joint return. Your home must the primary home for a qualifying person, such as your child, and you must claim that qualifying person as a dependent. Your spouse must not have lived in the house for the previous six months. If you share a house with another family, however, the remaining requirement may appear difficult to fulfill. According to IRS Publication 501, to qualify as head of household you must have "paid more than half the cost of keeping up your home for the tax year."
Two Heads of Household, One House
When two single adults, each with dependents, share the same house it may seem they both can't fulfill the requirement of paying "more than half the cost of keeping up a home." There has been some uncertainty about the IRS accepting that two adults can each contribute more than 50 percent of household expenses in the same house. In response, in 1998 the IRS released Memorandum SCA 1998-0, which specifically addresses this issue.
IRS Memorandum SCA 1998-041
Memorandum SCA 1998-041 concludes that a household is not determined by physical boundaries, but by underlying facts. Two adults can share the same house and, if they otherwise qualify, each is a head of household as the IRS defines it. Certain expenses may be equally shared. These include "property taxes, mortgage interest, rent, utilities, property insurance and food." But other household expenses are normally paid by the head of each family, independent of the other. These include "clothing, education, medical treatment, vacations, life insurance and transportation." When these individual expenses are added to each household's shared expenses, each head of household has paid more than 50 percent of that household's expenses, and therefore both would qualify.
Qualifying in a Shared House.
The memorandum also determined that cancelled checks and receipts for expenses are acceptable verification of household expenses for the purpose of establishing "head of household." The memorandum cites the Tax Court's conclusion in a related case in support of its finding: to say there is only one household because there is only one building "elevates form over substance." If two families share a residence, but each head of household cares and pays for dependents' expenses separately, separate households are "intended and resulted."
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