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Question about deducting interest on mortgage on a home that I had bought for my mother

Hi,

 

I had bought a home for my mother.  Both of us are on the mortgage.  For the purpose of the mortgage, affidavit of occupancy for my mother is primary residence and for me investment property.  Am I able to deduct mortgage interest from my personal income (ie treat it as a second home for tax purposes) or does my selection on the affidavit of occupancy preclude this?

 

Thanks in advance.

 

Regards,

 

Vitaly Borzenkov

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Question about deducting interest on mortgage on a home that I had bought for my mother

For purposes of the mortgage interest deduction on schedule A, you can deduct interest on your main home and one second (personal) home. You must be a legal owner or the “beneficial owner” and be the person who actually pays the mortgage.  (You do not have to be listed as a borrower, and we can talk about beneficial ownership in more detail if you want.)

 

If this is really investment property and you report rental income on schedule E, you would deduct the interest as a rental expense.  But by investment, I think you mean a much more casual relationship where your mom lives there for now but you will take the profit when she moves out and you sell.  

Also, you can deduct property taxes, but you must be the legal owner or co-owner against whom the tax is assessed and you must actually pay the tax.  There is no beneficial owner rule for property taxes.  

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4 Replies

Question about deducting interest on mortgage on a home that I had bought for my mother

1) was personal use of the property more than the greater of (1) 14 days or (2) 10% of the days rented?

Any day rented to anyone at less than a fair rental price is considered a personal use day. Any day rented to family members is a personal use day  unless fair rental is charged and the unit  is the family member's main home    IRC Sec 280A(d) (3)

I'll assume the answer is yes then the next question 

2) was the property rented less than 15 days? Any day rented to anyone at less than a fair rental price is considered a personal use day. Any day rented to family members is a personal use day  unless fair rental is charged and the unit  is the family member's main home 

I'll assume the answer is yes. since both are yes the IRS says this is a second residence. taxes and interest go on schedule A. There is a cap on mortgage acquisition debt 

 

Hal_Al
Level 15

Question about deducting interest on mortgage on a home that I had bought for my mother

Q. Am I able to deduct mortgage interest from my personal income (ie treat it as a second home for tax purposes) or does my selection on the affidavit of occupancy preclude this?

A. No, if it is investment property.  Yes, if it is a second home. 

 

But, I'm not a lawyer, and a definitive answer may require one. 

 

Your intent is as an investment and that may be good for the mortgage application.  For tax purposes, it appears you have a 2nd home, because you have personal use (a close family member lives there).  When it comes time to sell, a gain will be taxed at capital gains rate. But if there is a loss, the personal use rule precludes you from deducting that loss. 

TomD8
Level 15

Question about deducting interest on mortgage on a home that I had bought for my mother

Are you on the deed, or just on the loan?  In order to deduct mortgage interest, you must have an ownership interest in the property, i.e. your name must be on the deed, not just on the mortgage.

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

Question about deducting interest on mortgage on a home that I had bought for my mother

For purposes of the mortgage interest deduction on schedule A, you can deduct interest on your main home and one second (personal) home. You must be a legal owner or the “beneficial owner” and be the person who actually pays the mortgage.  (You do not have to be listed as a borrower, and we can talk about beneficial ownership in more detail if you want.)

 

If this is really investment property and you report rental income on schedule E, you would deduct the interest as a rental expense.  But by investment, I think you mean a much more casual relationship where your mom lives there for now but you will take the profit when she moves out and you sell.  

Also, you can deduct property taxes, but you must be the legal owner or co-owner against whom the tax is assessed and you must actually pay the tax.  There is no beneficial owner rule for property taxes.  

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