Purchasing a home with a child - primary residence?

[bobdrad]

We are purchasing a home with our child, for her to live in. We will be on the title, as will she. We own our own home. She will live in the home - we will not. It is not in our state. Neither our state nor hers has state income tax.

My understanding is that she can declare the home on her federal tax return as a primary residence.

How should we be declaring the home?

Who can deduct mortgage interest for the new home?

Any insights will be much appreciated!

[Bsch4477]

Generally the one liable for the mortgage and making the payments deducts the interest. 

[rjs · Accepted solution]

---

@bobdrad wrote:

My understanding is that she can declare the home on her federal tax return as a primary residence.

How should we be declaring the home?

---

You don't "declare" a home or a residence on your federal tax return.

---

@bobdrad wrote:

Who can deduct mortgage interest for the new home?

---

You didn't say whose names are on the mortgage. As a general rule each borrower can deduct the interest that he or she actually paid to the lender. But someone who is not named as a borrower on the mortgage probably cannot deduct any of the interest, even if they pay it.

You can only deduct mortgage interest on two homes, your primary home and one other. For example, if you own another home, such as a vacation home, besides your own primary home and your daughter's new home, you can only deduct mortgage interest on one of the other homes, either the vacation home or your daughter's home.

Similarly for real estate taxes, each owner can deduct the real estate tax that he or she actually paid to the state or municipality. You can deduct real estate taxes on any properties that you own in the United States.

[bobdrad]

We are all listed as borrowers on the mortgage.

I had thought that one could only deduct mortgage interest on their primary home. If we can also deduct for "one other" than perhaps this question is moot for us - these are the only two homes we have mortgages for.

Since we are all on the mortgage as well as the title, who deducts the property tax?

[Bsch4477 · Accepted solution]

The one who paid gets the deduction. 

[Mike9241]

There is a cap on post 12/15/2017 qualified debt that can limit the mortgage interest deduction. The initial amount is $750,000. If you refinanced your home, the cap would be even smaller. This applies to you and your spouse. So if you pay the interest on the mortgage on your daughter's home, the amount of that debt is included in the limitation for you. If you ever refinanced your home, the allowable portion of your debt on it is the amount existing on the date of refinancing + any cash-out used to substantially improve your home. On the other hand, your daughter has her own separate $750,000 limit. Now the mistake I see is that your names are on the title to her residence. That may make you part-owners. If it does (state laws vary) and the property was sold at a gain, you would owe income taxes on as much as 2/3's of the gain. 

The same rules apply to real estate taxes. The person who pays them gets the deduction