Can I claim mortgage interest if my name is on the loan but not in the deed?

[cluelessPotato]

I see many questions in the forum where the OP is on the deed but not on the mortgage.

My situation is the exact opposite.

My old man is semi-retired and added my name to the mortgage when he recently refinanced his home since he could not meet the income requirement alone.

My name is not on the deed for the property.

Through some research, it seems unwise to add my name through a grant deed if we want to sell the property in the future since I'll be hit with income taxes.

I live with my partner in a rental property under both our names and don't anticipate moving anytime soon.

My question is in three parts:

1) Can I claim deductions on the portion of the mortgage that I pay off?

2) Is there a way I can help with property taxes and claim benefits without my name being on the deed?

(or at least let him claim the deduction with my payment as a gift?)

3) If we don't plan on ever selling the home, does it make sense to just add my name to the deed now? (Goodbye first-time homeowner benefits down the road)

[Opus 17 · Accepted solution]

"my old man"?  -- your father?  spouse?

"my partner and I live in a trailer" -- you don't live in the home?

To deduct mortgage interest, you must be legally obligated to pay the mortgage (a borrower) and you must actually pay the interest.  You don't have to be an owner.

To deduct property taxes, you must be legally obligated to pay the taxes (be a legal owner against whom taxes are assessed) and be the person who actually pays the taxes.

1. Yes. [edited to add: see my updated answer below]

2. If you give the owner money, and the owner pays the property taxes, the owner can take the deduction (but because the standard deduction is so high, the owner probably would not actually save anything on taxes, especially if their income is so low that they need help with the mortgage and taxes).  If you pay the taxes directly, it would be risky for the owner to try and deduct them as a gift.   You can't deduct the taxes that you pay if you aren't legally obligated to pay them.

3. The only IRS "first time homeowner" tax benefit is the ability to withdraw up to $10,000 from an IRA to buy a home without paying the 10% penalty for early withdrawal (you still pay regular income tax).  In this case, "first time" means you did not own the home where you lived as your main home at any time in the 2 years prior to the purchase you are using the IRA for.  You can own another home and still qualify, just not the home you live in.  I can't offer any thoughts on state or local "first time home buyer" programs.

There can be tax consequences to being placed on the deed of someone else's home.  There are different forms of deed, and different situations where the calculation might be different (for example, if the owner is elderly and you expect to inherit the home but not live there, you might do something different than if you were going to move in with someone and share expenses.)  Proper legal and tax advice would be strongly recommended.

[Mike9241]

1) Normally no since you don't own or occupy the property. two key rules for being able to deduct expenses related to it. however, the law does allow an equitable owner to take those deductions. An equitable owner is a person who has the economic benefits (usually occupancy) and burdens (maintaining the property and paying its expenses) of ownership based on the facts,  

In one case where a taxpayer had neither title nor name on the mortgage the Tax Court determined the taxpayer was the equitable owner because he occupied the property, paid the mortgage, taxes, insurance and other bills associated with the property; mainy=tained the property and made improvements to it. 

since EO is determined based on the facts and each situation is different you may want to consult with a tax pro in your area. however, I think the lack of occupancy makes it difficult to find that you are an EO

2) Is there a way I can help with property taxes and claim benefits without my name being on the deed?

(or at least let him claim the deduction with my payment as a gift?  rather than you pay directly. make a gift to him to pay the bill and see to it that he pays it.

3) If we don't plan on ever selling the home, does it make sense to just add my name to the deed now? (Goodbye first-time homeowner benefits down the road) there no longer is any special benefit to being a first-time home buyer except possibly at the state level but tax laws do change. generally, it is unwise for your name to be on the title.  you would own 1/2.  it is likely your father will predecease you. you get a stepped-up basis for the 1/2 he owned equal to the FMV on the date of his death. there will be no step-up for the 1/2 you own so your basis is 1/2 of his cost basis. it is likely you would sell the property. you would not be entitled to the home sale exclusion since you would likely not occupy the property for 2 years in the 5 years before the sale.  Ownership for 2 out of 5 years before sale is also required. Thus depending on the gain, if any, you would owe capital gains tax on the sale.  

[Opus 17]

I do need to amend my previous answer.

As to you deducting mortgage interest, you can deduct interest you pay on your main home and one second home.  This house is not your main home.  You can call it your "second home" as long as you aren't deducting mortgage interest on any other second home.  I believe that being on the mortgage would allow you to consider this as a second home even if you are not on the deed, and deduct the part of the interest you actually pay. 

The rest of my answer stands as written. 

[cluelessPotato]

I don't quite live in a trailer but your understanding is correct.

1) To clarify, I've always listed the property in question as my permanent address since college, and continue to do so when filing my taxes as an independent.

I believe I have more than enough interest in the home since I've lived there on and off throughout the past year thanks to work from home. From what you're saying, this should be sufficient on the off chance that I am audited since it could at least qualify as a "second home".

2) You bring up a good point about my father's income. He most likely won't make enough to benefit from claiming the property tax payment as a deduction. Whether I do contribute at this point is more or less a question of filial piety.

3) Neither early withdraw from IRA nor adding my name to the deed sounds like wise decisions here. I will confirm with my CPA to just pay the mortgage for now and maybe the taxes (no deductions) and forget all that other stuff.

Thank you for your help!

[Opus 17]

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@cluelessPotato wrote:

I don't quite live in a trailer but your understanding is correct.

1) To clarify, I've always listed the property in question as my permanent address since college, and continue to do so when filing my taxes as an independent.

I believe I have more than enough interest in the home since I've lived there on and off throughout the past year thanks to work from home. From what you're saying, this should be sufficient on the off chance that I am audited since it could at least qualify as a "second home".

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I'm not sure how I got "trailer" in my mind from "rental property", sorry about that.

Your main home (principal residence) under income tax regulations is where you actually live.  It doesn't necessarily have anything to do with your "permanent address" for mailing or voting purposes, and if you were audited (unlikely), your listed address would carry very little weight.

This is not your principal residence if you don't live there, it can be your second home for the mortgage interest deduction. 

Adding your name to the deed can be a valid part of planning for the future, but you need proper advice that is specific to your situation.