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Merlo
Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I am considering getting a FHA loan for my college student

Resolved Question:

I am considering getting a FHA loan for my college student and cosigning when purchasing a house for her to live in at college.    I will make the payment and she will be able to get the $8000 tax credit. Can I get the interest and property tax deduction on my income tax?
Submitted: 8 years ago.
Category: Tax
Expert:  Merlo replied 8 years ago.
Hello halie,

In order for you to claim mortgage interest and property taxes as a deduction on your taxes, you must be an equitable owner of the property, which means you would also have to add your name to the deed on this home along with your daughter's name.

I assume that you already own a home and do not personally qualify for the first time homebuyers credit. If that is the case, then your daughter's credit would be limited to $4,000 as she would only be a 50% owner and you, as the other owner, would not qualify.

She can get the full credit if you put the house in her name only, but then you could not deduct the mortgage interest or the property taxes, as that only applies on a property which you have ownership in.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you halie, and please let me know if you need further clarification on this.


Merlo and 2 other Tax Specialists are ready to help you
Customer: replied 8 years ago.
We are not co-owning but co-signing which is a different type of loan
Expert:  Merlo replied 8 years ago.
Hello again halie,

Yes, that is what I understood you to say in your first post. And that is why there would be a problem with you deducting the interest and property taxes.

The only way that you are eligible to deduct mortgage interest and property taxes is if the interest and taxes are on your main home or a second home that you personally own. In other words, you cannot just take out a loan or co-sign for a loan on property where you are not also an owner, and still take these deductions. You must be an owner of the property.

So if you wanted to take these deductions, you would have no choice but to add your name as an owner, which would then limit your daughter's credit to $4,000.

If you leave your name off of the deed then your daughter would qualify for the full $8,000 credit. But then in that case, since you would not be listed as an owner, you could not deduct the interest and taxes. So you really have to figure which way will end up being more beneficial for you, as you cannot take both the full $8,000 credit and deduct the interest and taxes.

Please refer to page 2 of the following IRS publication in Part I for Mortgage Interest. It lists in that section the qualifications you must meet in order to deduct mortgage interest. One of those qualification is that "the mortgage is a secured debt in which you have an ownership interest".

http://www.irs.gov/pub/irs-pdf/p936.pdf

Because of that requirement, you would have no choice but to add yourself the deed as an owner if you want to deduct the interest and the taxes on this home.


If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you again halie, and let me know if you still have more questions on this.