Co-signed mortgage

[user17623223831]

I co signed my daughters mortgage and on the deed for a tax deduction and was the only reason I co-signed I  was told from an accountant since I’m on both I can take the deduction even though I’m not making the payments. After researching I’m not really sure I can ? 

[Mike9241]

if you don't pay the mortgage, you can't deduct the interest

you may want to see the article

https://www.withum.com/resources/parent-buys-house-kid-pays-the-mortgage-who-gets-the-interest-deduc... 

note the difference in your case in that your daughter is on the title.  

[Opus 17]

To deduct the mortgage interest you must be a legal owner, or a beneficial owner, AND you must actually pay the interest.  If you are on the deed, we don't have to define "beneficial owner," but if you don't actually make the mortgage payments, you can't deduct the interest.  That would include giving money to your daughter, who then pays the mortgage, but if audited, it would be easier to prove if you paid the lender directly. 

To deduct property taxes, you must be a legal owner AND you must actually pay the taxes.  There is no rule allowing a beneficial owner to deduct the taxes.    

[Hi Palms]

There is no rule allowing a beneficial owner to deduct the taxes.    

Tax court cases have permitted the deduction when taxpayers have proved they are equitable owners of the property on which they have paid property taxes imposed by local goverments.

[Opus 17]

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@Hi Palms wrote:

There is no rule allowing a beneficial owner to deduct the taxes.    

Tax court cases have permitted the deduction when taxpayers have proved they are equitable owners of the property on which they have paid property taxes imposed by local goverments.

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The problem is that the treasury regulations specifically say that equitable owners may deduct mortgage interest, but taxes can only be deducted by persons with an "interest" that incudes "fee-ownership and co-ownership."  §1-163.1 and §1-164.4.  If the Tax Courts have extended the equitable ownership rule, they are going outside the regulation (which they are allowed to do -- but on the other hand, Tax Court rulings do not create binding precedent on other Tax Court judges.)    And if such cases go before the court it means that auditors are (at least sometimes) denying the deduction, which forces the taxpayer to take it to court.  

However, I agree there is at least a good argument for deducting the tax in spite of the regulation.   I would like to read at least one of the cases if you have a citation available. 

[AmeliesUncle]

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@Opus 17 wrote:

To deduct property taxes, you must be a legal owner 

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I previously thought that too, but the Courts have repeatedly ruled that property tax can also be deducted for an equitable owner.  [EDIT:  While I was looking up citations, Hi Palms beat me to it. LOL.]

As with mortgage interest, we have held that taxpayers who do not have legal title to property may nevertheless deduct property taxes paid with respect to the property if they establish equitable ownership of the property. See Trans v. Commissioner, supra; Uslu v. Commissioner, supra. Because we have found petitioners to be the equitable and beneficial owners of the residence property, we accordingly find petitioners are entitled to the claimed Schedule A deductions for real estate taxes on the residence property.

https://www.taxnotes.com/research/federal/court-documents/court-opinions-and-orders/beneficial-owner...

As in the case of mortgage interest, we have held that taxpayers who do
not hold legal title to property but who establish they are equitable owners of the property are
entitled to deduct property taxes paid by them with respect to the property. See Trans v.
Commissioner, T.C. Memo. 1999-233 [1999 RIA TC Memo ¶99,233]; Uslu v. Commissioner,
T.C. Memo. 1997-551 [1997 RIA TC Memo ¶97,551]; Conroy v. Commissioner, supra.

https://bradfordtaxinstitute.com/Endnotes/TC_Memo_2000-360.pdf

[Hi Palms]

Yeah, I believe the Service is fine with the deduction provided the taxpayer has the benefits and burdens of ownership. In legal terms, that's the functional equivalent of deeded ownership; as good as having the property titled in your name for tax, and legal, purposes.