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This question is a good one, and this topic has been a hotly debated issue. In the past, a taxpayer had to be the legal owner of the property and also had to be legally liable for the loan, which meant that his or her name had to be on the mortgage. Treasury Reg. 1.163-1(b) states that (I'm paraphrasing but I am including the link to the actual regulation) a taxpayer may deduct mortgage interest that he or she pays, even though his or her name is XXXXX XXXXX the mortgage loan, providing he or she is the "equitable" owner of the property. Tax court has interpreted this regulation in a way that says that the taxpayer is legally liable for the loan (must pay it to prevent foreclosure) even though his or her name is XXXXX XXXXX the loan. For the text of the regulation, see:
For a discussion of this issue and references to related tax court rulings, see:
If you were my client, I would say that you would be able to deduct the mortgage interest since your name is XXXXX XXXXX deed. However, I would also recommend that your name be added to the loan or that you assume the loan (or get your own mortgage loan) as soon as feasibly possible.
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