Family lives together, who gets the mortgage interest and property tax deduction?

[cbusa]

Here's scenario daughter takes out a mortgage for her parents as parents are unable to take out on their own due to financial reasons, daughter gets 1099 from bank but mother and father actually live in the house and pay the the property tax. Can the mother father take the property tax and mortgage interest deduction since they were the ones paying them? Is it going to be a problem since daughter is the one who gets the 1099?

[Hal_Al]

The mother & father take the property tax and mortgage interest deductions since they are the ones paying them.

They have to meet the rules, which are:

1. They are legally obligated to pay it.  They meet this requirement, since they own the property and thus  have a "beneficial interest" in the mortgage. 
2. They actually pay it. 

[TaxTim1]

Not to disagree with @Hal_Al but you may want to take a look at IRS Publication 350.  Generally, Real estate taxes are only deductible by a taxpayer who pays the tax and is legally required to pay the taxes. I'm assuming the mortgage was taking out to purchase the home & the deed is in the daughter's name.  If so, the father/mother will likely not be able to take the deduction.

Re the interest deduction, IRS Publication 936 states that you can only deduct mortgage interest if you are "legally liable" for the loan. It is not uncommon to assume that liability is determined by the name or names on the mortgage. However, according to Title 26 Code of Federal Regulations section 1.163-1(b), even a taxpayer not directly liable for a mortgage can deduct interest as long as he paid and has a legal interest in the home. This means that you can deduct interest you actually paid as long as you are on the mortgage or the deed.

Of course, it is possible I have a misunderstanding of your situation.

Hope this helps.

[Mike9241]

@TaxTim1 your answer might change if you reviewed the concept of equitable ownership and read reg 1.163-1(b).

Taxpayers who do not have legal title to a property may still claim a Schedule A deduction for real estate taxes and interest paid if they are the equitable owners of the property. 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 interest and taxes on it are factors that might indicate equitable ownership.  Trans (TC Memo 1999-233), Uslu (TC Memo 1997551), Edosa (TC Summ. Op. 2012-17) Phan (TC Summ Op. 2015-1)

By the way while often cited IRS publications have no official standing.  there was even a court case where taxpayers stated they relied on an IRS PUB. the PUB contained inaccurate info. Taxpayers lost.

https://www.accountingweb.com/tax/individuals/tax-court-grants-mortgage-interest-deduction-for-equit... 

from the regs 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.

it is unclear if the daughter would face any tax issues if her mortgage debt exceeds the limits under IRC 163.

[TaxTim1]

@Mike9241 noted.  That's why I referenced 1.163-1(b) in my reply.  However, I did not make it clear it could also apply to the property taxes.

[TaxTim1]

Sorry, @Mike9241 I meant to say the concept of equitable ownership could apply to the payment of the property taxes.

[Carl]

Generally, one has to meet two criteria to claim/deduct mortgage interest and property taxes.

1) Must be legally obligated to pay the debt.

2) Must actually pay the debt.

However, there is this thing called "vested interest", where if the taxpayer has such in the property, they can claim the deductions provided they actually paid them. In some cases, that "vested interest" can be difficult to prove if audited. For real estate, I don't see it as that big a problem if they claim and can prove the property they live in (which the daughter paid for) is their primary residence, and only residence. Proving residence isn't all that difficult either. I would think that having a roof over one's head would be "vested interest". But then, I'm not a tax attorney/lawyer/professional either.