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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12673
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Property owned by irrevocable grantor trust. form 1098 comes

Customer Question

property owned by irrevocable grantor trust. form 1098 comes in the name of the mortgage holder. who claims the mortgage interest?
JA: The expert will know how to help. Please tell me more, so we can help you best.
Customer: need to know who claims the mortgage interest on form 1098? Property owned by irrevocable grantor trust. loan in the name of individule who purchased the loan. 1098 has individules name on it
JA: Is there anything else the expert should be aware of?
Customer: no
Submitted: 2 months ago.
Category: Tax
Expert:  Lane replied 2 months ago.

Hi. My name's Lane.

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I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice on three continents since 1986.

Bear with me a moment and I’ll provide my initial response, and then we can go from there if you have further questions on this.

Customer: replied 2 months ago.
Ok.
Expert:  Lane replied 2 months ago.

First, lets be sure of the type of trust we're dealing with. A grantor Trust and an Irrevocable trust are two different animals.

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A grantor trust is a trust where there has been a retained interest (such as the ability to revoke - making it revocable, rather than irrevocable).

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For a grantor trust (typically a REvocable trust, or there could be some other power retained by the grantor) the interest would be reported on the grantor's return. Revocable trusts (grantor trusts) ARE passthroughs for tax purposes.

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It would only be in the case of an IRRevocable trust, where the trust is truly a separate taxable entity, filing it's own income taxes on form 1041, that the interest deduction would go to the trust.

Expert:  Lane replied 2 months ago.

Which tax ID is on the 1098?

Expert:  Lane replied 2 months ago.

Hello?

Customer: replied 2 months ago.
The soc sec of individual on 1098. Caption on trust says ..irrevocable grantor trust.
Expert:  Lane replied 2 months ago.

Amazing ... that's an oxymoron. Unless this is a VERY specifically drafted trust called an IDGT (Intentionally Defective Grantor Trust). Grantor trusts and irrevocable trusts are mutually exclusive (It's either one or the other)

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The term defective is a misnomer. It is an exceptionally effective tool for estate tax purposes. The defective nature of the trust relates to income taxes.

When the IRS is determining what you own at the time of your death so they can tax it (for estate tax purposes), they will disregard any and all assets transferred to a trust that qualifies as an IDGT.

However, when the IRS is trying to figure out how much income tax the individual owes each year, all income generated by the trust is reported by the Trustor on the Trustor’s income tax return and payable by the Trustor, individually. So this type of trust is effective for estate tax purposes, but defective for income tax purposes.

An IDGT is defective for income tax purposes because the drafter purposefully included terms that violate one or more of the provisions of Internal Revenue Code Section 672 et. seq.

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Do you think this could be the case? If it's an IDGT AND the person lives in the home, then the interest IS deductible by the individual