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detglaman
New Member

Who is entitled to claim mortgage interest if mortgage is in one name and deed another but the property is a rental income?

Loan is in wife's name but deed is in her parents and they use it as a rental income property. Who can claim the interest on the loan? Do her parents have a right to claim even when 1098 form comes in wife's name? 

6 Replies
TomD8
Level 15

Who is entitled to claim mortgage interest if mortgage is in one name and deed another but the property is a rental income?

[Edited] IRS Publication 936 states that the taxpayer must have an "ownership interest" in the property in order to deduct mortgage interest on a loan secured by their main home or a second home.   Mortgage interest on a home or second home is deductible on Schedule A.  

https://www.irs.gov/publications/p936

 

But if the mortgage proceeds are used on rental property, they become a rental expense, deductible on Schedule E.   From page 15 of IRS Publication 535, "Business Expenses":

You can deduct interest on a debt only if you meet all the following requirements.
You are legally liable for that debt.
• Both you and the lender intend that the debt be repaid.
• You and the lender have a true debtor-creditor relationship.

 

Page 15 of Publication 535 also states:

 

Mortgage.
Generally, mortgage interest paid or accrued on real estate you own legally or equitably is deductible.

 

https://www.irs.gov/publications/p535

 

 

 

**Answers are correct to the best of my ability but do not constitute tax or legal advice.
twInFL
New Member

Who is entitled to claim mortgage interest if mortgage is in one name and deed another but the property is a rental income?

Tom, 

 

Do you have a reference for this response? I'm wondering if the same applies for the following:

 

My wife and I for reasons withheld are filing separate returns. She owns and has a mortgage on a property that we rent. We would mutually prefer to have the rental income reported on my return. My name is not on the mortgage nor the deed, but rent is collected into a joint account and "we" pay the mortgage. Can I deduct the mortgage interest and other deductions for the property (depreciation) on schedule E?

Carl
Level 15

Who is entitled to claim mortgage interest if mortgage is in one name and deed another but the property is a rental income?

In order to claim/deduct mortgage interest two criteria must be met.

1) You must have a legal obligation to pay it. If your name is not on the mortgage, then generally you don't have a legal obligation to pay it. But if you live in a community property state, that complicates things.

2) You must actually pay it.

All this is covered in IRS Publication 535, Chapter 4.

My wife and I for reasons withheld are filing separate returns.

Just be aware that when a married couple files separate, that *automatically* disqualifies you for quite a lot of deductions and credits you would otherwise qualify for if you filed joint. If you have dependents, then you will feel it big time.

So if you're filing separate because of qualified student loan payments, what you may save in reduced payments, you will pay to the IRS with the loss of quite a lot of deductions and credits. For one thing, when you file separate returns, the student loan interest reported to you on the 1098-E is *NOT* deductible.

TomD8
Level 15

Who is entitled to claim mortgage interest if mortgage is in one name and deed another but the property is a rental income?

@twInFL 

 

From page 15 of IRS Publication 535, "Business Expenses":

 

You can deduct interest on a debt only if you meet all the following requirements.
• You are legally liable for that debt.
• Both you and the lender intend that the debt be repaid.
• You and the lender have a true debtor-creditor relationship.

 

From the same page:

 

Mortgage.

Generally, mortgage interest paid or accrued on real estate you own legally or equitably is deductible.

 

https://www.irs.gov/pub/irs-pdf/p535.pdf

 

 

**Answers are correct to the best of my ability but do not constitute tax or legal advice.
twInFL
New Member

Who is entitled to claim mortgage interest if mortgage is in one name and deed another but the property is a rental income?

Tom,

 

Ok but since the mortgage is not in my name I'm not:

 

legally liable for that debt.

 

But if I understand correctly you are arguing that I may have a equitable interest  in the property if I'm paying the mortgage and/or my name is on the deed?

TomD8
Level 15

Who is entitled to claim mortgage interest if mortgage is in one name and deed another but the property is a rental income?

I am not arguing, I'm just giving you the IRS wording on these things.  That said, "equitable" ownership is a gray area.  You'll find a good discussion of how tax courts have interpreted the concept in this web reference:  https://www.forbes.com/sites/anthonynitti/2014/12/30/five-traps-to-avoid-when-deducting-mortgage-int...

 

 

**Answers are correct to the best of my ability but do not constitute tax or legal advice.

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