We originally bought the house together and both our names were on the mortgage and deed. However, after refinancing we took my name off the mortgage and deed in case I wanted to buy another home. That never happened. We have always lived at the same house. The last two years I've paid the mortgage payments. However, since my name is not on the deed or mortgage can I claim the mortgage interest deduction? We consider ourselves 50/50 owners even though my name isn't on the deed or mortgage.
From a legal standpoint, you are not an owner. This could negatively impact you if your brother dies before you do. Please see a lawyer.
The short answer is no. You must pay the mortgage and be an owner of the property.
There is a doctrine called constructive ownership where someone who does not own in name, can be treated as an owner. You would have to take the deduction, get audited, and then go to tax court and argue your case. The rulings I have read go both ways and depend on the exact facts in each case.
The case I remember best is a man, who was a recent immigrant, whose brother bought him a house since he did not have a credit rating. The man lived in the home, performed all work, paid all the bills, and acted as the owner in every significant way, with the plan of refinancing in his name as soon as he could. The IRS denied the deduction but the tax court ruled in favor. Another case involved a man who moved in with his elderly father and began paying all the bills. Since the man expected to inherit the house, and meanwhile was acting in every way like the responsible owner (paying all bills, etc.) the IRS denied but the tax court allowed.
However in other cases the tax court has ruled against the taxpayer. It is specific to every circumstance.
Here your argument could be weakened by taking the home out of your name in preparation of moving out.
But in any case, taking the mortgage interest deduction means risking an audit and a trip to tax court to argue your case. The black letter rules say you can't.
However, the owner can deduct the mortgage interest even though you pay it, if you treat the mortgage payments as a gift from you to that person. That would allow someone to get the benefit.
I have not read the Court Cases, but I definitely lean towards "yes", you can claim the interest as an "equitable" owner.
<a rel="nofollow" target="_blank" href="https://www.law.cornell.edu/cfr/text/26/1.163-1#b">https://www.law.cornell.edu/cfr/text/26/1.163-1#b</a>
However, as Opus mentioned, it can be challenging to prove yourself an "equitable" owner, and without a 1098 from the mortgage company, the IRS is almost positively going to question it.
You did not just refinance the house. Your brother essentially bought you out of your half. You don't own any part of the house now.
My friend passed away. He left everything he had to me. I’m the Administrator, executorand the benefactor of his estate. I a sense, I am him.
The bank refused to send me a 1098 mortgage interest statement because the original owner of the loan passed away. They said the IRS doesn’t require them to do so. Is this true? I paid the loan on time for six years at a whopping 12.5% interest.
if you inherited the property you are the owner. However, you also have to take the step of titling the property in your name. whether this will cause issues with the mortgage company is something you should take up with a lawyer in the state the property is located in. Maybe you can refi and substantially less than 12.5%
I agree with the bank. here's something from 1098 instructions
Payments by Third Party (you)
Report all interest received on the mortgage as received
from the borrower, except as explained under Seller
Payments, later. For example, if the borrower's mother
makes payments on the mortgage, the interest received
from the mother is reportable on Form 1098 as received
from the borrower.
The last two years I've paid the mortgage payments.
That doesn't matter. Since your name is not on the mortgage, you do not have a legal obligation to pay it. Since your name is not on the deed, you do not have a legal obligation to pay property taxes either. So you also can't claim property taxes.
We consider ourselves 50/50 owners even though my name isn't on the deed or mortgage.
The IRS would most likely consider exactly the opposite, since physical action was taken by you, voluntarily, to divest yourself of any legal obligations to the property by removing your name from the deed, as well as the mortgage.
Your brother, the actual legal owner, can claim the mortgage interest and property taxes though, regardless of who may have paid it, since he is the only one legally obligated to pay it.
@FuzzBuzz - - The lending institution is required to issue Form 1098 only to the payer of record. The payer of record is the individual carried on the institution's books and records as the principal borrower. See page 3 of this reference:
https://www.irs.gov/pub/irs-pdf/i1098.pdf
In whose name was the 1098 issued during the six years in which you made all the payments? During those years who (if anybody) deducted the mortgage interest?
@FuzzBuzz wrote:
My friend passed away. He left everything he had to me. I’m the Administrator, executorand the benefactor of his estate. I a sense, I am him.
The bank refused to send me a 1098 mortgage interest statement because the original owner of the loan passed away. They said the IRS doesn’t require them to do so. Is this true? I paid the loan on time for six years at a whopping 12.5% interest.
You probably need legal and tax help from a competent estate law attorney and a competent accountant.
This is what should have happened:
When your friend passed away, you go to court to present the will for probate and be named the administrator or executor of the estate. You file a final tax return for your friend (as your friend's administrator) that reports all his income and deductions up until the day he died. If your friend had income after he died, that income is paid to his estate, which is a different legal and tax entity from your friend, and files a separate estate tax return if it has taxable income.
You don't pay one dime for the house from your own funds, ever, until the probate is closed and the home is transferred into your name. The bank will most certainly require you to refinance the home or assume the mortgage, since they can't lend money to a deceased person. If you need to make mortgage or property tax payments while the probate is pending, you make the payments from your friend's estate -- his assets -- bank accounts and so on.
If you are the only heir, then when probate is closed you inherit the home, the remaining balance in the bank accounts, and any other property according to the will or the laws of your state.
Mortgage interest and property taxes you pay after probate is closed, when the house is legally titled in your name, are deductible by you. If the mortgage is still in your friend's name at that point, something has gone very wrong in the process, because the lender should not allow the home to be transferred without the prior mortgage being paid off, refinanced, or assumed.
Mortgage interest and property taxes you paid while your friend was alive, or after your friend died but the house was still in his name, are not deductible by you under the law. You might be able to make the argument under the "equitable ownership" principles discussed at the top of this thread, but that means claiming the expenses and going through an audit. And the bank is under no obligation to give you tax documents in your friend's name. The bank may be required to give the tax documents to you in your role as administrator of the estate, but that would be for purposes of preparing your friend's final tax return and any estate tax returns, not so you could claim the interest that was paid in your friend's name.
If the loan and house are still in your friend's name and probate was not completed properly, you need legal help ASAP.
@Carl wrote:
The last two years I've paid the mortgage payments.
That doesn't matter. Since your name is not on the mortgage, you do not have a legal obligation to pay it. Since your name is not on the deed, you do not have a legal obligation to pay property taxes either. So you also can't claim property taxes.
We consider ourselves 50/50 owners even though my name isn't on the deed or mortgage.
The IRS would most likely consider exactly the opposite, since physical action was taken by you, voluntarily, to divest yourself of any legal obligations to the property by removing your name from the deed, as well as the mortgage.
Your brother, the actual legal owner, can claim the mortgage interest and property taxes though, regardless of who may have paid it, since he is the only one legally obligated to pay it.
@Carl there are two different taxpayers here. @appzguy is the thread starter, probably a couple years ago, who lived in the house with his brother. @FuzzBuzz is the taxpayer who says they paid the mortgage for 6 years and inherited the house from their friend.
Thanks @Opus 17 I completely missed that. This is exactly why users need to start their own threads. Now this thread has conflicting information in it, which makes it basically wrong now. (sigh!)
@Carl wrote:
Thanks @Opus 17 I completely missed that. This is exactly why users need to start their own threads. Now this thread has conflicting information in it, which makes it basically wrong now. (sigh!)
Well, @appzguy is probably long gone, @FuzzBuzz needs a lawyer, and anyone else who reads this trying to get free advice on the internet deserves what they get 😝
@FuzzBuzz taxpayers can deduct interest paid on a mortgage if they are the legal or equitable owners of the mortgaged real estate even if they are not directly liable on the debt IRS reg 1.163-1(b)
Interest paid by the taxpayer on a mortgage upon real estate of which he is the legal or equitable owner, even though the taxpayer is not directly liable upon the bond or note secured by such mortgage, may be deducted as interest on his indebtedness.
I am wondering you can point me to the publication regarding this?
You can review IRS publication 936, Home Mortgage Interest Deduction, here is a link:
https://www.irs.gov/publications/p936
It seems that you need to be legally obligated to pay the debt to be able to deduct the mortgage interest.
@shounshell wrote:
I am wondering you can point me to the publication regarding this?
IRS regulation 1.163-1(b) says,
"Interest paid by the taxpayer on a mortgage upon real estate of which he is the legal or equitable owner, even though the taxpayer is not directly liable upon the bond or note secured by such mortgage, may be deducted as interest on his indebtedness."
https://www.law.cornell.edu/cfr/text/26/1.163-1
Publication 963 does not include this situation -- the publications are often written more narrowly to apply to the broadest possible audience.
You can deduct mortgage interest you pay, if you are the legal or equitable owner, even if you are not obligated on the loan documents. Proving you are an equitable owner is the tricky part.
And an equitable owner can't deduct property taxes, because the law is written in such a way that it allows the possibility of equitable owners for the mortgage interest deduction but only allows legal owners in the property tax section.
i am a legally owner in deed and title also i pay the mortgage but i am not in the loan, can i deduct my tax.
You may be an equitable owner entitled to deduct your share of the mortgage interest and real estate taxes. An equitable owner is a person who has the economic benefits and burdens of ownership, based on the facts. Occupying and maintaining the home and paying the mortgage and taxes on it are (strong) factors that probably would indicate equitable ownership. An equitable owner can deduct interest paid on a mortgage even if they are not directly liable for the debt. IRS REG. 1.163-1. Further, mortgage payments and taxes paid from a joint account with two equal owners are presumed to be paid equally by each account owner (absence evidence to the contrary). However, if payments are made from separate funds, each taxpayer is entitled to deduct all the interest and taxes they pay with their separate funds (CCA 201451027).
no opinion as to deductibility is given if this is not your residence. the term is not defined in the code or regs. for tax purposes who is and isn't is mainly the result of court decisions.
if this is a mortgage on your home, the rules for deductibility must be complied with. see PUB 936
if you are a legal owner and you pay the property taxes, then yes, you are entitled to deduct them.
The mortgage is in my daughter-in-law's name. She's been paying the mortgage to date. Her name, my name and my son's name are all on the title/deed of the house. If I started paying the mortgage on the house, even thought it's not in my name, can I take the tax deduction on the mortgage interest? The home is not my permanent residence. I live in another state.
there is a concept in tax law referred to as equitable ownership. if you were an equitable owner you could deduct the mortgage interest based on Phan, TC Summ Op 2015-1 even though you are not liable for those payments.
the decision for the taxpayer rested on the fact that the taxpayer occupied the property, did everything an owner would do paid all the bills, maintained the property including making repairs and improvements,
you live out of state, so a key factor occupying the property is missing. in my opinion, you would not qualify to be an equitable owner so you get no mortgage interest deduction. I offer no opinion as to whether those mortgage payments represent a gift to your DIL which would require you to file a gift tax return if the annual payments were over $15,000
@susie1162 --
"Equitable ownership" is not the issue here. Since your name is on the title/deed, you have an actual ownership interest. So you qualify in that regard.
But in order for you to deduct the mortgage interest, the mortage must be a secured debt on a qualified home in which you have an ownership interest. A "qualified home" means your main home or your second home. See Qualified Home in this IRS reference for details:
https://www.irs.gov/publications/p936#en_US_2021_publink1000229900
So, with regard to your deducting mortgage interest, the issue is whether or not the home is a qualified home for you.