Can I claim mortgage interest deduction if my name is not on the mortgage or deed but I paid all the payments and live at the house with my brother. We are 50/50 owners

[appzguy]

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.

[SweetieJean]

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.

[Opus 17]

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.

[Opus 17]

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.

[TaxGuyBill]

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...>

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.

[Stinkerbellkity]

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.

[FuzzBuzz]

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. 

[Anonymous]

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.

[Carl]

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.

[TomD8]

@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?

[Opus 17]

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@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. 

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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. 

[Opus 17]

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@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.

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@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.  

[Carl]

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!)

[Opus 17]

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@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!)

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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 😝

[Anonymous]

@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.