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socrateaser
socrateaser, Attorney
Category: Estate Law
Satisfied Customers: 37952
Experience:  Retired (mostly)
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Can a taxpayer deduct real estate taxes and mortgage

Customer Question

Can a taxpayer deduct real estate taxes and mortgage interest paid on a property she lives in that is in a living trust? The members of the trust include her and her parents and her sisters. The taxpayer pays the taxes and mortgage interest but the property is under the family trust. It is not being rented. Her and her parents live there.
Submitted: 8 months ago.
Category: Estate Law
Expert:  socrateaser replied 8 months ago.
Hello, If by "members," you mean trust "beneficiaries," then the answer to your question is "no." Only the creator(s) of a living trust (legally termed, settlor/trustor/grantor) can deduct the real estate taxes and mortgage interest, because a living trust is considered a "grantor" trust under the Internal Revenue Code. A grantor trust, as its name implies, is taxable only to the grantor. If I'm misunderstanding your use of the term, "members," please feel free to clarify, and I'll provide a revised answer. Note: There may be a way to make the house tax deductible to the beneficiaries. But, that would require an extensive review of the existing trust and the various participant's financial goals. This is beyond the scope of anything that I can do in this forum. If you are seeking that sort of review, I can send a premium services invitation, and we can discuss the matter offline. Otherwise, I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer -- otherwise, the website retains your entire payment, and I receive nothing for my efforts in your behalf.Thanks again for using Justanswer!
Customer: replied 8 months ago.
Yes, I suppose I mean beneficiaries. I'm actually not sure. All I was told is that the house is under the family's living trust. But one member which is the daughter is the one making the payments on the house
Customer: replied 8 months ago.
I read somewhere on the IRS website that an individual is allowed to deduct mortgage interest if she has some kind of interest in the house such as her name is ***** ***** deed or mortgage loan
Customer: replied 8 months ago.
But I wasn't sure if being in the living trust qualifies
Expert:  socrateaser replied 8 months ago.
A taxpayer may deduct mortgage interest on their principal residence, if the person actually pays the mortgage interest, and the taxpayer is the legal or equitable owner. A living trust beneficiary is not the equitable owner of the property. The trust is the owner, and the beneficiary has an unvested future interest in the property, which is contingent upon the death of the grantor. If the sister is only a beneficiary, then regrettably, she cannot deduct the mortgage interest. An entirely different legal structure would be required to accomplish the deduction goal. I hope this clarifies my original answer. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer -- otherwise, the website retains your entire payment, and I receive nothing for my efforts in your behalf.Thanks again for using Justanswer!
Customer: replied 8 months ago.
I see, understood. Ok so this leads me to my next question which pertains to me personally. I inherited a property which is in a living trust. My parents passed away and we all (siblings) inherited a home. I'm the only one who lives in it and pays the mortgage and taxes. May I deduct interest and taxes? According to your previous response, it is my main home and I am actually the legal owner correct?
Expert:  socrateaser replied 8 months ago.
Correct. I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer -- otherwise, the website retains your entire payment, and I receive nothing for my efforts in your behalf.Thanks again for using Justanswer!
Expert:  socrateaser replied 8 months ago.
Hello again,I see that you have reviewed my answer, but that you have not provided a rating. Do you need any further clarification concerning my answer, or is everything satisfactory?If you need further clarification, concerning this matter, please feel free to ask. If not, I would greatly appreciate a positive feedback rating for my answer -- otherwise the website retains your entire payment, and I receive nothing for my efforts in your behalf.Thanks again for using Justanswer!
Customer: replied 8 months ago.
Another question occurred to me, if instead, i choose to rent out the home, may i file my taxes using schedule E? again, it's my sisters and I in the trust but I'm the one paying mortgage etc ... and I've thought about renting it out.
Expert:  socrateaser replied 8 months ago.
If you are the trust grantor/settlor/trustor, then you can rent the house and deduct your expenses on Schedule E. If you are a trust beneficiary, then you cannot deduct your expenses, because you have no vested interest in the trust property (the home). Please note that follow-up questions at Justanswer must be for clarification of the original question, and not to engage in new subject matter. Were that permissible, customers could engage in an infinite-length Q&A session covering any possible issue, and the expert would never receive any compensation. Your latest question is on the edge of new subject matter, which is why I'm mentioning this issue so that we may avoid any misunderstandings. I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer -- otherwise, the website retains your entire payment, and I receive nothing for my efforts in your behalf.Thanks again for using Justanswer!
Customer: replied 8 months ago.
Ok I see, please let me know what to do so I can continue to discuss this topic because I'm more confused than before. Earlier you said I can deduct mortgage interest and taxes because I'm the owner and now you're saying I can't use schedule E if I rent the home because I have no vested interest in the trust property. Let me know how we can continue to discuss cuz I'm a bit confused. thank you
Expert:  socrateaser replied 8 months ago.
A trust has three parties: 1. The grantor (aka trustor or settlor) -- which is the person who creates the trust.2. The trustee -- which is the person who holds the trust property in his or her name.3. The beneficiary/ies -- which is/are the person(s) for whom the trust property is held. In a "living trust" (aka "revocable inter-vivos trust"), the trustee holds title to the property in his or her name, but the grantor is liable for the taxes, and is entitled to the benefits of the trust, until death -- at which point, the beneficiaries get the remaining benefits. In order to rent the property and deduct the exxpenses, you must be the grantor -- no one else can take the income and deduct expenses. There are other forms of trusts where the beneficiaries could obtain the income and deductions -- and other legal forms that can accomplish a similar goal. But, for the purposes of your original question, if you are the grantor, then you can rent the property and take the deductions. Otherwise, not. I hope this better clarifies my previous answers. Thanks again for using Justanswer!
Customer: replied 8 months ago.
Ok I'm just so confused. This rule doesn't make sense it just seems very unfair. So even though my parents (grantors) already passed away, I will never be able to take any deductions on the house whether I rent it or live in it, correct?
Expert:  socrateaser replied 8 months ago.
You never said that your parents had passed away. If they have passed away, then the trust is no longer a "living trust." The trust is irrevocable, and the beneficiaries are now the owners. The trustee of such a trust, typically is required to provide a grant deed to the designated beneficiary/ies in accordance with the trust terms. At which point, the beneficiary/ies is/are the owner(s), and can treat the property as such for tax purposes. Here's the bot***** *****ne: You came here looking for a cost effective answer to a complicated legal problem. From what you describe, you need to hire a lawyer, and that comes with an associated cost. I can't evaluate in this forum what must be done to completely resolve the trust and distribute the assets to the beneficiary. If you're in California, I can send you a premium services invitation, and we can formalize an attorney-client relationship, and then I can review your trust instruments, and resolve all of the remaining issues, so that you can deduct the home on your tax returns. If you're in a different state jurisdiction, then I can give you a link to a reputable lawyer referral service. But, at this point, I've explained everything that I can without reviewing all of your documents and having you disclose all of your financial circumstances. Let me know if you're interested in the premium services invite. Otherwise, I believe you are at the point where the answer to your question becomes: "Hire an attorney." I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer -- otherwise, the website retains your entire payment, and I receive nothing for my efforts in your behalf.Thanks again for using Justanswer!
Customer: replied 8 months ago.
"07 April 2016 02:04
I see, understood. Ok so this leads me to my next question which pertains to me personally. I inherited a property which is in a living trust. My parents passed away and we all (siblings) inherited a home. I'm the only one who lives in it and pays the mortgage and taxes. May I deduct interest and taxes? According to your previous response, it is my main home and I am actually the legal owner correct?07 April 2016 02:08Customersocrateaser
Estate Lawyer
Correct.I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer -- otherwise, the website retains your entire payment, and I receive nothing for my efforts in your behalf.Thanks again for using Justanswer!"
Customer: replied 8 months ago.
at 2:04 I explained my parents passed away. You told me I could deduct interest and taxes because I own and live in the home but then you told me I couldn't use schedule E on my taxes because I wasn't the grantor. It was very confusing to me. I don't think I need a lawyer, I just wanted to know if I choose to move out of the house and rent it, if i could use sch E on my taxes.
Expert:  socrateaser replied 8 months ago.
The original question was: Can a taxpayer deduct real estate taxes and mortgage interest paid on a property she lives in that is in a living trust? The members of the trust include her and her parents and her sisters. The taxpayer pays the taxes and mortgage interest but the property is under the family trust. It is not being rented. Her and her parents live there. A: The presumption in the above question is that the parents who live in the house are the trust grantors, and that they are living, because you described the trust as a "living trust." Later you asked what appeared to be an entirely different and unrelated question: Ok so this leads me to my next question which pertains to me personally. I inherited a property which is in a living trust. My parents passed away and we all (siblings) inherited a home. I'm the only one who lives in it and pays the mortgage and taxes. May I deduct interest and taxes? According to your previous response, it is my main home and I am actually the legal owner correct? A: Corrrect. The second question, which I assumed was unrelated, and which I answered in good faith, despite the fact that it was beyond the scope of the original and against website policy, now appears to be the same as the original. The confusion being that the parents who live in the house are not the trust grantors -- the trust grantors are your parents, and they have passed away. Given all of the above, if the property is still held in the name of the trustee of the trust, then the successor trustee named in the trust instrument must transfer the property to the beneficiaries who are entitled to the property under the trust terms. Once that is done, the beneficiaries become the "owners" and they can deduct their respective expenses on their individual tax returns. If the property is already transferred to the beneficiaries, then those beneficiaries (including you) are the owners and you all can take deductions against the property on your respective tax returns as previously discussed. I'm hoping that the fog is starting to clear, now. Please let me know if we're on the same page.
Customer: replied 8 months ago.
well first question is same topic but not the same because in the first question, her parents are still alive and she lives with them. In my case, my parents are deceased. I just wanted to know if same rules apply. If you feel it was the same question then how was it beyond scope of the original and against website policy?Ok so what I gathered in first question is that my friend cannot deduct anything. In my case, I can because it is no longer a living trust when the grantor passes away and my siblings and I became owners. BTW, there was no trustee or executor named in the trust in my family's case but that's a different issue that I would not like to get into. Now that i recall, the assets in the trust became an estate after my parents passed. We sold some last year but the home I live in now is named as "The ''' Family Estate" that's who the mortgage bill is addressed to but I pay it. Either way, that makes me the beneficiary /the owner and basically I can take sch A/sch E tax deductions correct?
Expert:  socrateaser replied 8 months ago.
Ok so what I gathered in first question is that my friend cannot deduct anything. A: Correct. Either way, that makes me the beneficiary /the owner and basically I can take sch A/sch E tax deductions correct? A: I believe you are correct. I can't be definitive, because i don't have all of the paperwork (deed, trust, estate forms, etc.). But, it appears that you are the "equitable" (i.e., "fair") owner, and therefore you are entitled to treat the home as yours for tax purposes. Note: I hope I'm not coming across as hostile to you. This form of communication always risks that people not understand the emotions behind the words. I just want to get the facts straight, so that I can provide the answers you have requested, and so that you're completely satisfied with this transaction. I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer -- otherwise, the website retains your entire payment, and I receive nothing for my efforts in your behalf.Thanks again for using Justanswer!
Expert:  socrateaser replied 8 months ago.
Hello again,I see that you have reviewed my answer, but that you have not provided a rating. Do you need any further clarification concerning my answer, or is everything satisfactory?If you need further clarification, concerning this matter, please feel free to ask. If not, I would greatly appreciate a positive feedback rating for my answer -- otherwise the website retains your entire payment, and I receive nothing for my efforts in your behalf.Thanks again for using Justanswer!

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