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Brad
Brad, Retired IRS Agent
Category: Tax
Satisfied Customers: 177
Experience:  Retired; 32 years service and expertise in Individual, Partnership, Trust, Corporate Tax Law;Mensa
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I want to determine if I can take the deduction for ...

Customer Question

I want to determine if I can take the deduction for interest on my mother's mortgage. I pay the mortgage. She quick-claimed the deed to herself & me.
Submitted: 6 years ago.
Category: Tax
Expert:  Brad replied 6 years ago.

HelloCustomer

I have a few basic questions that will help me to answer your question.

1. Is the quit claim deed recorded so that you are listed as a legal co-owner of the property and you as well as your mother are liable for the property taxes?

And was this property quit claimed, recorded and legally co-owned by you prior to 2008?

2. Is the home mortgage co-owned by you and your mother, or is it strictly her liability?

Balanor

Customer: replied 6 years ago.
1. I was listed as co-owner March, 2007
2. The mortgage is solely my mother's
Expert:  Brad replied 6 years ago.

HelloCustomer

Tax law is very explicit on interest payment deductibility.

1. From IRS Publication 936, you can read that:

"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. 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. "

http://www.irs.gov/publications/p936/index.html

2. Perhaps you and your mother can visit with the mortgage lender and discuss something like a "wrap-around" mortgage for the house where you would be liable for the mortgage payments. The important feature of a "wrap-around mortgage" is that you have to record it, or it will not be considered a secured mortgage debt.

Please read this article on wrap around mortgages: http://www.mtgprofessor.com/A%20-%20Wrap-Around%20Mortgages/what_is_a_wrap-around_mortgage.htm

3. In retrospect, I can only offer that your mother might have borrowed the payments from you under a note payable secured by her ownership portion of the house. The interest deduction would still be unavailable to you, but your payments would then be an investment, rather than a nondeductible interest payment.

Contact me again for any questions!

Balanor

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