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Ask Lane Your Own Question
Category: Tax
Satisfied Customers: 12667
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I have a client who was in jail a year, during

Customer Question

Hi, I have a client who was in jail for about a year, during that time the roommate paid the real estare taxes. Can the real estates be client for a roommate who is not in the mortgage or title. Thanks
Submitted: 2 years ago.
Category: Tax
Expert:  Lane replied 2 years ago.
Sorry, that one's (especially since it's just a Year) is a stretch.
There IS a concept called beneficial ownership.
Where, under the code, if the person bears the benefits and burdens of ownership[ they can deduct mortgage interest, property taxes, etc IF they paid.
But IRS would likely say that this was transitory ... and that what the roommate did was gift or loan the money to the actual owner.
IRS has actually loosened, if you will, the interpretation of IRC section 199 (but this is as it relates to an ongoing issue where, say a manufacturing plant is able to deduct for a facility not actually owned, but leased,.
This one would likely be called a transitory situation.
If the roommate did this for several years and really took on ALL of the burdens of owning the property, and enjoyed ALL of the benefits just as under adverse possession, with real property title, THEN you'd have a stronger case.
So sorry, but in my opinion this situation wouldn't warrant... the beneficial ownership (sometimes called the substantial ownership) argument.
Hope this helps
Customer: replied 2 years ago.
I just find out the roommate is in the title. Would that change?
Expert:  Lane replied 2 years ago.
Heck yeah.
An owner of the property, which is securing the mortgage, and actually paid the mortgage out of pocket.
Legally, you there ... the problem now, will be explaining why your client is taking the deduction and the 1098 (sent to to IRS as well) probably has your client's name on it?
Let me know.
If that's the case, you'll have to send in a statement. Their knee-jerk reaction will be to deny because the 1098 says your client ... if that's the case ... let me know
Customer: replied 2 years ago.
Only the person that went to jail is in the mortgage. So no interest deduction is taking since roommate/other owner is not liable for mortgage but just to be sure. Can the owner that is title not in mortgage and paid real estare taxes can she claim real estate taxes as deduction on schedule a?
Expert:  Lane replied 2 years ago.
Yes, I'd agree, on the mortgage interest, to be safe.
But yes, on the property tax .. absolutely.
Owner gets the deduction. As long as the other owner isn't taking it, no problem there at all.