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RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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Can a trust deduct home mortgage interest

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Can a trust, that is not a grantor trust, take a deduction for home mortgage interest and property taxes assuming the property is the principal residence of the beneficiaries? [(Code Section 163(h)(4)(D)]...... Could this allow the following scenario? The property is owned 50% by the parents and 50% by a trust for their children. Both the parents and the children live in the house as their principal residence. Wouldn't this increase the maximum interest deduction to interest on $2.2 million in mortage loans? (The parents get $1.1 million and the children's trust gets $1.1 million)
Submitted: 8 years ago.
Category: Tax
Expert:  RD replied 8 years ago.

What kind of trust is this?


If it is an irrevocable trust than you cannot take the deduction for home mortgage interest and property taxes.


Let me know if you have any question. Bonus and Feedback will be highly appreciated!!!



renu@yashcon.com



Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases.


Customer: replied 8 years ago.
Reply to Renu V's Post: This is an irrevocable trust. RIA's analysis at K-5474 (Re: Code Sec. 163(h)(4)(D)doesn't seem to distinguish between types of trusts. Do you still feel that an irrevocable trust would not be entitled to the deduction....Thank you, XXXXX
Expert:  RD replied 8 years ago.

Yes...an irrevocable trust can pass mortgage interest and property taxes to the grantor/beneficiaries for the deduction on their personal tax return.

Let me know if you have any question. Bonus and Feedback will be highly appreciated!!!

XXX@XXXXXX.XXX

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases.

Customer: replied 8 years ago.
Reply to Renu V's Post: So then in effect in the situation I laid out in the original question a deduction could be taken for interest on $2.2 million of mortgage between the parents and the children....Murray Shaevitz
Expert:  RD replied 8 years ago.

Sorry about the typo in the earlier post- As I mentioned in my first post

Yes...an irrevocable trust cannot pass mortgage interest and property taxes to the grantor/beneficiaries for the deduction on their personal tax return.

You can deduct home mortgage interest only if you meet all the following conditions.

  • You must file Form 1040 and itemize deductions on Schedule A (Form 1040).
  • You must be legally liable for the loan. You cannot deduct payments you make for someone else if you are not legally liable to make them(IN your case the irrevocable trust is the owner- it is a separate entity). Both you and the lender must intend that the loan be repaid. In addition, there must be a true debtor-creditor relationship between you and the lender.
  • The mortgage must be a secured debt on a qualified home.

So in your case the question of $2.2 million of mortgage does not arise.

In any case- if both the parents and the children own the property than based on the ownership ratio and presuming that both are equally liable on the mortgage.,....you will be able to get upto $1.1.mn for your parent and $1.1 mn for your child....

Let me know if you have any question. Bonus and Feedback will be highly appreciated!!!

 

XXX@XXXXXX.XXX

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases.

Customer: replied 8 years ago.
Reply to Renu V's Post: The irrevocable trust can't take the deduction or pass it on to the beneficiaries so the only ways to get a deduction for interest on more than $1.1 million is to use a grantor trust or to have the children own the home personally?...Murray Shaevitz
Expert:  RD replied 8 years ago.

The irrevocable trust does not have any income from the house so there is no question of deducting the mortgage interest and property taxes.

Yes...you are right...You might want to consider having a living trust(grantor trust) and than the mortgage interest can be passed on to the grantor...

Let me know if you have any question. Bonus and Feedback will be highly appreciated!!!

 

XXX@XXXXXX.XXX

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases.

 

RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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