who gets to claim mortgage interest paid?

[Janitor Bob]

Client lives in a home and pays the mortgage and all of the interest, but the mortgage is ONLY in the client's mother's name.  I am assuming that this means ONLY the client's mother (not the client) can claim the mortgage interest paid on Sch A?

 

It will not help the mother, but would help my client.

Edited February 6, 2015 by Janitor Bob

[jklcpa]

Client can't deduct the mortgage interest because client has no ownership interest in the property.  Mother can't claim the deduction because she didn't make the payments.

[Pacun]

Judy gave you the correct answer.

 

I had the same situation and for about 3 years no one benefited. The father never wanted to "sell" the house to the son but when he retired, the son convinced the father to "sell" the house and now son is the owner and is able to deduct interest.

[jlewis]

I will try to attach an interesting tax court case where there could be a distinction between a "legal" and "equitable" owner for mortgage interest deduction. There were several issues and the mortgage interest part discussion is on pages 4-8.

USLU.TC Memo 1997-551.pdf

[Janitor Bob]

Interesting...This makes me want to allow the interest deduction.  I'd love to hear other opinions on this taking into consideration above cited case.

[Abby Normal]

http://www.journalofaccountancy.com/Issues/2008/Oct/EquitableOwnerEqualsDeduction.htm

 

Treas. Reg. § 1.163-1(B ) permits a deduction for interest paid on a mortgage when a taxpayer is the legal or equitable owner of the property, even though the taxpayer is not directly liable for the mortgage. In Saffet and Ana Uslu v. Commissioner, TC Memo 1997-551, the Tax Court held that a married couple was the equitable owner of a home titled to the husband’s brother since, from the date of acquisition, they had occupied the home and made all payments for the mortgage, taxes, repairs, maintenance and improvements.

 

Take it!

Edited February 6, 2015 by jmdaviscpa

[Janitor Bob]

Line 11...so no matching issues

[Pacun]

There is a difference when the owner and the other person lives in the same house. In my case, that court decision doesn't apply.

[Abby Normal]

There is a difference when the owner and the other person lives in the same house. In my case, that court decision doesn't apply.

The reg and the court case have nothing to do with the owner living in the house. If you're paying mortgage interest and you're living in and paying all the expenses of the house, you get a mortgage interest deduction and real estate tax deduction, even if your name is not on the title or the loan.

[Pacun]

I didn't read the whole case, but I was under the impression that the owner of the house didn't live in the house and that will make the case that the house was "own" indirectly by the occupants. Again, I didn't read the whole case.

[jlewis]

From case I posted and reading JOA article above that cited a case that did not meet equitable owner criteria, a big factor was that the mortgage was non-recourse in addition to paying for everything. Just my take on it.

Edited February 6, 2015 by jlewis

[kcjenkins]

You need to look at the specific facts in this case, but if the case fits, then it's do-able.  Does the mother also live in the home?  Has she signed a quit-claim deed, even tho not recorded?  Anything in writing between them stating that the home will belong to the child as soon as the mortgage is paid off?  And an important factor, did the kid pay any part of the down-payment?

 

Some good references:

 

http://double-taxation.com/2012/03/01/parent-buys-house-kid-pays-the-mortgage-who-gets-the-interest-deduction/

 

http://www.legalmatch.com/law-library/article/what-is-equitable-title.html

[Janitor Bob]

Mother originally owned the home and lived in it.  many years ago mother moved to assisted care facility and daughter/client and her husband moved into her house...lived there and assumed payments on the mortgage and all upkeep of the home.  two years ago, mother passed away....daughter/client is was only living relative and everything went to daughter/client....but house, for some reason, is still in deceased mother's name.  Attorney said "No need to change it"

 

daughter/client and her husband still live in the home and make payments on the mortgage.

[kcjenkins]

Clearly, in that case, the daughter is both the legal AND the equitable owner.  They should, however, get a better lawyer, and do the steps to get the title into her name, before something happens that leaves them in legal limbo, such as her death or incapacitation.  It will be simple right now, an expensive mess if they don't until too late.  

[jklcpa]

With all the new information, I agree that this is clearly a case for your client taking the deduction.

[Janitor Bob]

Everybody here is so smart!  I even hesitate to contribute at times because I fear looking ignorant among the other posts.

Edited February 6, 2015 by Janitor Bob

[ILLMAS]

There is this form, unfortunately I can't remember the form number, but basically you let the IRS know the account is not under the TP name but you are claiming it and letting them know.

[kcjenkins]

You could probably just use the worksheet behind the Sch A line for mortgage interest (no 1098 received) line 3

 

Or use the Election form to add an explanation using the 'Blank Statement' form.  I'd choose the first option myself.  

[Pacun]

That form is used when you have two owners and the 1098 is under the person that doesn't pay anything. So owner 1 transfers the mortgage paid to the second owner who pays the mortgage

[kcjenkins]

It will also work for this situation, where the 1098 went to the legal owner, but the interest is paid by the equitable owner.  Eapecially in this case, where the wife is, in truth, both the legal (she inherited it) and the equitable owner.

[Abby Normal]

Attorney said "No need to change it"

 

 

 

Good luck ever trying to refi or sell the house! I would get the name changed sooner rather than later.

[mcb39]

Everybody here is so smart!  I even hesitate to contribute at times because I fear looking ignorant among the other posts.

 

Never is that going to happen!  You have no idea how many times I feel that way.

[jklcpa]

Everybody here is so smart!  I even hesitate to contribute at times because I fear looking ignorant among the other posts.

 

JB, you and anyone else should never feel that way. I know I've made my fair share of mistakes on here, and research materials and internet searches have save my butt at times too.  Everyone brings something of value to the site, and I can say unequivocally that I'd be begging for reassurance if I had to do some of the EIC returns that are presented that others here answer with ease. The same goes for obscure farm issues.

[kcjenkins]

I've missed a few myself.  We all have something to contribute, JB.  It's never a 'dumb question' if it's an honest one.  Heck, sometimes it's the seemingly 'easy' question that turns out to highlight some tricky issue.  I've learned a lot from just answering some of those.  We all appreciate you, JB, so don't ever hesitate.  

[Richcpaman]

JB:

 

Your client never spoke to a lawyer about changing the title.

 

They might have, but probably didn't.  And if they did, I do not know a reputable lawyer who would not have told them to go to the court house and file this deed to put the title into your clients name.  Heck, the lawyer would get paid to prepare the documentation. 

 

Your client was not interested in paying the small amount that it would take to fix this mess.

 

So your client was just covering their butt.  They haven't done the most basic steps to figuring out what to do after the death of the mother.

 

Call an attorney friend, and recommend that they get your clients straight.   The mortgage can be transferred, and if not, then the lawyer can do the paperwork to file if there ever IS a sale, transfer or other issue that may make the title a problem.

 

Sometimes we are doing tax returns, and sometimes, we are the only professionals with  whom many of our clients interact with on any regular basis who have any clue about fixing stuff like this. 

 

Rich