Since your daughter and her mother pay all the expenses including the mortgage and taxes, they may be deemed equitable owners. As equitable owners, they may be entitled to deduct the mortgage interest and real estate taxes. An equitable owner is a person who has the economic benefits and burdens of ownership, based on the facts. Occupying and maintaining the home and paying the mortgage and taxes on it are (strong) factors that probably would indicate equitable ownership. An equitable owner can deduct interest paid on a mortgage even if they are not directly liable on the debt. IRS REG. 1.163-1. Further, mortgage payments and taxes paid from a joint account with two equal owners are presumed to be paid equally by each account owner (absence evidence to the contrary). However, if payments are made from separate funds, each taxpayer is entitled to deduct all the interest and taxes they pay with their separate funds (CCA 201451027). This would mean you do not get the eduction for the deductible expenses they pay.
I would think that if they are equitable owners, you do not report as income what they pay on the property.
