Homes in different states

[owlnal063]

I have two questions - 

My daughter fell short on her mortgage and delinced, in order for her to move into new home, I will need to draw mortgage and home under my name so she can move in -

Questions -

1) My current home in Illinois is fully paid off (0 mortgage) which is my Primary Home. The new home in MO will be considered Second home. Can I claim, MO home as Primary Home even if I live in illinois?

2) Other than securing loan and home under my name, my daugher will be paying mortgage, all expenses for new home. I don't know whether she can pay loan directly or I will have to pay on her behalf. In that case, if she pays me and then I pay mortgage, how do I show that money (as a rent or something else)? 

3) If I continue to use my current home in IL as a Primary Home, will I be able to deduct mortgage interest and taxes on my return for MO home?

[Opus 17]

Your main home is where you live most of the time.  You can't change that by declaring it to be so, it must be where you actually live.

You can deduct mortgage interest on your main home and one second home that you own.  The interest must be secured by the home, and must be used to buy, build or substantially remodel the home.  That means that, if you take an equity loan or mortgage on your main home to help your daughter buy a different home, none of the mortgage interest is deductible.  

If you owned or co-owned the second home in MO, and there was a mortgage on that home (to buy, build, or remodel it), that interest would be deductible if you paid it, as your second home.  If your daughter paid the interest (and it would be her main home, of course), it would be deductible by her, as long as she was either a legal co-owner (on the deed) or an equitable owner (which I can explain later if needed).  But only if the loan is secured by that home--not if the loan is secured by a different property.  

Property taxes can be deducted by the person who pays them if that person is a legal owner or co-owner (on the deed).  You don't have to live in the home or consider it a second home to deduct property taxes.  However, you can't be an equitable owner, only a legal owner.  And there is currently a cap on deducting state and local taxes (including property taxes).  Unless the cap is lifted, you might not get any actual deduction, depending on the amount of income and property tax you pay already.  

If you owned the home in MO, paid all the expenses, and rented it to your daughter, you might be able to treat that as a rental and deduct some or all of the expenses.  However, this is a bit complicated and I would want you to get professional tax advice.  One key factor is that, to take the full benefit of any tax position, you have to rent the home at full fair market value (what your daughter would pay to rent a similar home in the same neighborhood, or what you would charge a stranger for rent).  If you give your daughter a lower-than-market rental price, you lose most of the tax advantages.

[Hi Palms]

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@Opus 17 wrote:

Property taxes can be deducted by the person who pays them if that person is a legal owner or co-owner (on the deed). 

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They can also be deducted by an equitable owner provided that equitable owner is responsible for paying the taxes.

https://www.journalofaccountancy.com/issues/2008/oct/equitableownerequalsdeduction

[Opus 17]

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@Hi Palms wrote:

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@Opus 17 wrote:

Property taxes can be deducted by the person who pays them if that person is a legal owner or co-owner (on the deed). 

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They can also be deducted by an equitable owner provided that equitable owner is responsible for paying the taxes.

https://www.journalofaccountancy.com/issues/2008/oct/equitableownerequalsdeduction

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I disagree to the extent that the regulations specifically include "equitable owner" for the mortgage interest deduction, but not the property tax deduction, so the Tax Court seems to have gone outside the letter of the regulations, and Tax Court cases don't set binding precedent.  (Although they can suggest that other Tax Courts will follow the same thinking, it's not binding.).  Taxpayers should always hire their own professional for borderline cases.  

[Hi Palms]

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@Opus 17 wrote:
I disagree to the extent that the regulations specifically include "equitable owner" for the mortgage interest deduction, but not the property tax deduction, so the Tax Court seems to have gone outside the letter of the regulations,

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You're wrong (as usual). Merely because equitable owner is not specified in the Code or Regs, does not indicate that such individuals are foreclosed from taking the deduction for property taxes paid provided they are responsible for said taxes.

In fact, neither the Code nor Regs mention legal or equitable ownership with respect to the deduction of real property taxes. Why don't you read them? The court didn't go "outside the letter of the regulations" because no such language exists.

[owlnal063]

Hello,

Thanks for your answer. It helps me understand the situation.

My daughter will be on a title but not on a loan. I am not using equity from my current home to get a loan secured.

Looks like best not to use a rent option. She will be paying a monthly loan payments on my behalf directly or can send me amount equal to monthly loan payment and I can make payments. 

I think rule is to 50-50 to be considered both homes as a Primary residences, but I am not certain. As long as I or my daugher can take credit for interest and tax paid then we're okay.

Thanks

[owlnal063]

Thank you for your reply.