MORTGAGE INTEREST

[DEO]

TP purchased rental property some time back. Prior owner had a mortgage on property. At time of closing mortgage was not paid off for. TP kept on paying mortgage payments. It was only this year 8/2018 that TP was able to obtain their own mortgage for the property.

I am now finalizing the TP 2017 returns.  My question, given the fact that TP was paying the mortgage in 2017, who gets the deduction of the mortgage interest. The mortgage interest is a very sizeable amount(50,000.00). What makes it interesting now is that TP and the previous owners are not on speaking terms.

Thanks.

Deo

[Abby Normal]

Equitable ownership theory might come into play:

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

But in your case, they actually did own the home subject to the mortgage. I'm confused as to how the title was transferred without the mortgage company being paid off.

[Pacun]

After considering, your client was the owner of the house and therefore able to deduct.

 

[Lee B]

It wouldn't be the first time that property has been sold without the simultaneous transfer of title.

[jklcpa]

It's deductible, and if you need a cite, use reg sec 1.163-1(b) that starts off with the quote below. There is more in that section that isn't relevant to this discussion and therefore isn't quoted here. Bold is mine for emphasis.

Quote

(b) Interest paid by the taxpayer on a mortgage upon real estate of which he is the legal or equitable owner, even though the taxpayer is not directly liable upon the bond or note secured by such mortgage, may be deducted as interest on his indebtedness.