Can I deduct Interest paid toward family loan used to bought my primary resident?

Forum|Forum|2 years ago
September 27, 2023
8 replies
74 views

Earlier this year my parents lend me $750k to buy a house. From what I read I can deduct interest from my income but do I need to file any documentations for the IRS? A few potential complications

- My parents are not U.S. citizens, and they don't live in the U.S. so they won't be able to report interest income I paid them since they don't file U.S taxes

- I rent out a portion of my house...I am not sure if this is related.

I just want to be prepare to ensure I have everything I need so I can claim my deduction at the end of the year.

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Best answer by NCperson

Expert Reviewed

Bottom of page 3

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

You can deduct your home mortgage interest only if your mortgage is a secured debt. A secured debt is one in which you sign an instrument (such as a mortgage, deed of trust, or land contract) that:
• Makes your ownership in a qualified home security for payment of the debt;
• Provides, in case of default, that your home could satisfy the debt; and
• Is recorded or is otherwise perfected under any state or local law that applies.

debt if you put your home up as collateral to
protect the interests of the lender. If you can't
pay the debt, your home can then serve as payment to the lender to satisfy (pay) the debt. In
this publication, mortgage will refer to secured
debt.

NCperson

Level 15

did you provide them a lien so that the loan is collateralized by the home or was this just a personal loan from your parents?

Curious_panda1Author

Level 2

No I did not provide the lien. But I can prove the funds are used to purchase my current primary resident. I also have a loan contract between my parents and I.

would I need to provide them a lien in order for me to deduct interest from my income?