1041 Trust

[peggysioux5]

Taxpayer’s mother had a revocable trust and passed away in 2019.  No estate/trust income in 2019.  Personal residence with mortgage was in trust.  Attorney obtained an EIN for trust in January of 2020 and attorney had taxpayer obtain a loan under trust’s EIN in January of 2020.  Loan was only in existence for two months (high interest loan) and then taxpayer (trustee and beneficiary of trust) refi’d in taxpayer’s name to buy brother out.  Taxpayer made the payments from her personal funds on the high-interest loan for those two months (interest and points over $11,000).  Would the taxpayer be considered an equitable owner being she was a beneficiary and mother had passed; and therefore, able to claim the interest on her individual tax return?  I found the following in the 1041 instructions:

Qualified residence interest.

Interest paid or incurred by an estate or trust on indebtedness secured by a qualified residence of a beneficiary of an estate or trust is treated as qualified residence interest if the residence would be a qualified residence (that is, the principal residence or the secondary residence selected by the beneficiary) if owned by the beneficiary. The beneficiary must have a present interest in the estate or trust or an interest in the residuary of the estate or trust. See Pub. 936, Home Mortgage Interest Deduction, for an explanation of the general rules for deducting home mortgage interest.

Peggy Sioux

[DANRVAN]

On 4/14/2021 at 9:53 PM, peggysioux5 said:

Would the taxpayer be considered an equitable owner being she was a beneficiary

A beneficiary has equitable ownership.  An equitable owner who makes the payment is entitled to deduct mortgage interest, so why not?