Bought a house for my parents and everything is in my name. They are paying for the mortgage and all repairs/renovations. I am currently renting an apartment with my S/O in NYC. Is this legal?

[jeongern]

I paid the down payment, the mortgage and deed are under my name.  I accept that I will be responsible for making the mortgage payments should my parents not be able able to. I just want to know if this is legal, and if not, what ways I can go to fix this. And how would I go about doing my taxes in this situation? I understand that I probably should have asked prior to putting my name down on the mortgage, but it did not dawn on me until now. Any help would be appreciated.

[Critter-3]

Having a house that family lives in and helps in paying the cost is perfectly legal and doesn't need to be reported on an income tax return.

[jeongern]

Thank you for your reply. If I could ask you a couple more questions, like I stated earlier I am currently living and working in NYC with my S/O. I should put my address as my NYC one instead of my parents house (under my name), so that I am taxed accordingly right? And how would I go about filing this in my tax return for next year? 

[Critter-3]

Normally you enter the address where the IRS can send you notices ... but in the case of NY you probably should use the NY address so you have less hassles from them. 

[Critter-3]

IF  you can itemize deductions then you can put the RE taxes and Mortgage interest on the Sch A. 

[jeongern]

Don't mean to be disrespectful at all and I hope you don't mind me questioning, but why do you say if?

[Opus 17]

@Critter-3 

The taxpayer can’t deduct the mortgage interest and property taxes if he does not pay them.  

[Critter-3]

@Opus 17    Since this is not a rental I consider any amount paid by the family member as if paid by the owner ... consider it to be a gift.

@jeongern    You can either itemize deductions OR use the standard deduction whichever is greater so  itemizing may not be in your favor.

[Opus 17]

Let’s take this one step at a time.

1. This is an income tax forum. The IRS doesn’t care where you live and doesn’t care what property you own. The mortgage lender might have a requirement that you live in the home that you are borrowing against.  You might be in default of your mortgage if you do not live in the home but the mortgage is in your name. If the mortgage lender discovers that you are in technical default, they could require immediate repayment of the mortgage even if you haven’t missed a payment.  This is some thing that you should review with your real estate attorney before you sign any documents.

2. It is perfectly acceptable under the tax law for you to own one home and not live in it, and to allow family to live in it without charging them rent.  However, in the situation that you describe, there are a number of things that you can’t do.

2a.  You can’t deduct the mortgage interest and property taxes on your tax return, and your parents can’t deduct the mortgage interest and property taxes on their return.  To deduct the mortgage interest and property taxes, the taxpayer must be legally obligated and also be the person who actually pays the bills. You are legally obligated, but your parents are paying the bills, so neither one of you can deduct the interest and taxes.

2b. You can’t apply for the STAR property tax reduction in New York State, because you have to own the home and live in it as your main residence to qualify for that tax break.

3. The address that you use on your tax return should always be the address where you want to receive official mail from the IRS about your tax return. It does not have to be the address of a home you own or even the home you live in.

4. You pay state and city income tax based on where you actually live and work, regardless of the address of any properties you own. Presumably, you have been filing a New York State tax return and paying New York State and New York City tax because you live in an apartment there with your partner. That will not change just because you also own a house someplace else. What counts for New York state and city taxes is where do you live and work more than half the days of the year.

The reason we say “if you itemize“ is that 80% of taxpayers don’t have enough itemized deductions to beat the standard deduction. However in this case, even if you do itemize your tax deductions, you can’t deduct the mortgage interest and property taxes for the reasons I already described.

[Opus 17]

@Critter-3 

that seems very dodgy to me. The only tax provision that I know of that specifically allows a payment made by one person to be treated as a gift to another is student loan interest paid by a parent on behalf of a child. When a parent pays student loan interest on the child’s student loan, then either the parent or the child can take the deduction, and if the child takes the deduction the reason is that the payment is treated as a gift.

I’m not aware that that is written down for any other tax deduction, and the regulations are specific that in order to deduct mortgage interest and property taxes, you have to be the person who is obligated and the person who actually pays.  I would consider that very risky in case of audit.  Professional advice would always be suggested.

[Critter-3]

Following that train of thought the parents should send the money to the owner and they should make the payment from their own account.  If they pay more than $30K a year then a gift tax return should be filed to avoid any possible questions if they are ever audited.