Dear Raym,
Thank you for your question.
If I am understanding you correctly this is your mother's primary home. Do you live in the home with her?
yes, I do
Dear Ryam0nd,
Thank you for your feedback.
this does not seem right. It sounds like the IRS is saying that because you paid her share of the interest, she had to count that as income. This should not be right. you are joint tenents and both obligated 100% for the loan payment as well as the taxes.
is that what is happening?
Tax Preparer
GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
yes, I claimed my mother 2004 - 2008 BUT could not claim her in 2006 due to Pension pay out (income) over a certain amount
Dear Raymond,
Thanks for the additional information.
How much interest are they saying she has to count as income? Was this half the total or the entire amount?
Were you on the mortgage and title then?
Dear RaymOnd,
Ok so now I am getting a better since of what is going on.
Sorry to drag this out but I need full undestanding before giving you a specific course of action. Your patience is appreciated.
so you claimed the taxes mortgage and insurance because you were paying the mortgage for a property you were not a tenent to the deed.
Is that correct?
Raymond,
I got it now. The IRS figures she benefitted from your payment of the taxes.
How much in interest did you pay and claim during 2006?
17,930.00
Dear RyamOnd,
Great. IN 2006 the IRS allowed you to gift up to 12,000 without filing a gift tax return.
It seems to me if you file a gift tax return for your mother of 17,930 dollars for 2006, then then gifts are not taxable.
You say you were the cosigner of the loan. Lets get one more piece of detail before I go further. In whose name did the 1098 get addressed to by the bank?
(I will be back, i have to step out.)
Both of our names -- The IRS has both name on the 1098 mortgage interest statment
thank you for the information.
There are two things of concern here.
1. The person who actually pays the fees is able to take the deduction, as long as the home is your primary home. Your mother should not have to count that as income. At best it would be an argument for a gift, equal to her share of the interest.
however according to the IRS publication, you must have an ownership interest in the home in order to take the mortgage interest deduction. (page 2, IRS Publication 936) http://www.irs.gov/pub/irs-pdf/p936.pdf
2. Else where in publication 936, where there are two or more borrowers, on another peson's home, the IRS indicates that each person is only entitled to their share.
The language is confusing, because in one place it says yes you can, but in the first instance you have to have an ownership in the property.
What the IRS appears to be doing is saying that, in 2006, since you had no ownership in the property, that you paid the interest for your mother; and there for she has to claim this as income. (she received a benefit).
If this is in fact the IRS position, then to unwind it is to say it is a gift. In order to do that, you would have to file an amended return, eliminating the deduction. You would owe additional tax with any resultant penalty and interest. Because the gift exceeded the annual gift tax exclusion, you would also have to file a 2006 gift tax return. There would be no gift tax, however, because you would not have exceeded your life time gift tax exclusion of 1 million dollars. Your life time exclusion would be reduced by the amount of the gift. Your mother would pay no tax because it was a gift. Gifts are not taxable income.
If you compare the gift tax scenario to unwind the situation for 2006, you would likely pay more in taxes than your mother would on the interest.
2. With legal assistance you might be able to successfully challenge this, in while or in part. If in part you would be back to the gift solution for half of the interest. BUT, you would avoid a gift tax return because you would be below the threshold for the annual gift tax exclusion for that year (2006).
Your mother is qualified to get free legal assistance with this through what is called Low Income Tax Payer Assistance programs. These organizations are paid money by the federal government and the IRS to provide free or low cost legal assistance.
Disregard the family size and income limits, because you are using 2006 where your mother filed for herself. the following document has the list of offices. Just scroll to the ones for your state that are closest to you. http://www.irs.gov/pub/irs-pdf/p4134.pdf