Personally, I would recommend that you seek professional tax/legal guidance with respect to this transaction. There could be certain gift tax (return filing) issues involved and a professional may be able to provide you with more beneficial options for structuring this arrangement with your son.
@keatja1 wrote:
My first question is: Can I declare the mortgage interest on this "third" home?
You cannot deduct the mortgage interest on a third home; it would not be considered a "qualified home" by the IRS for that purpose.
See https://www.irs.gov/publications/p936#en_US_2018_publink1000229900
@keatja1 wrote:
My second question is: Since my son is paying some rent, would I consider this an investment property rather than a third home?
You would not able to consider the home as a rental property (report the income and deduct the mortgage interest paid) since your son is (almost certainly) paying less than fair rental value. As a result, the home is considered to be used by you for personal purposes (per Section 280A).
