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nlsmothers
New Member

If I purchased a home from my grandmother and she charges me 3% interest, do I need to send her a 1099? Can I claim it on my taxes? I make her a monthly payment at 3%

The purchase of the home is a warranty deed. My grandma acts as the mortgage lender. Charging us 3% interest for 30 years

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jtax
Level 9

If I purchased a home from my grandmother and she charges me 3% interest, do I need to send her a 1099? Can I claim it on my taxes? I make her a monthly payment at 3%

For general info on mortgage interest see https://www.irs.gov/pub/irs-pdf/p936.pdf

Note that after tax reform mortgage interest deductions don't matter for many people because the total of mortgage interest, charitable contributions, state and local taxes (max $10k) must all add up to more than the now large standard deduction before you see any benefit. The standard deduction is $12k single and $24k married for 2018.

Note that the home must collateral for repayment of the loan (i.e. the loan must be secured by a lien on the home). 

You would not give a 1099 to your grandmother. If your grandmother were in the business of lending money she would have to give you a 1098, but otherwise no. 

This previous answer tells you how to enter the interest (if qualified) into TT:

https://ttlc.intuit.com/questions/4059646-mortgage-interest-deduction-when-seller-financed

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6 Replies
jtax
Level 9

If I purchased a home from my grandmother and she charges me 3% interest, do I need to send her a 1099? Can I claim it on my taxes? I make her a monthly payment at 3%

For general info on mortgage interest see https://www.irs.gov/pub/irs-pdf/p936.pdf

Note that after tax reform mortgage interest deductions don't matter for many people because the total of mortgage interest, charitable contributions, state and local taxes (max $10k) must all add up to more than the now large standard deduction before you see any benefit. The standard deduction is $12k single and $24k married for 2018.

Note that the home must collateral for repayment of the loan (i.e. the loan must be secured by a lien on the home). 

You would not give a 1099 to your grandmother. If your grandmother were in the business of lending money she would have to give you a 1098, but otherwise no. 

This previous answer tells you how to enter the interest (if qualified) into TT:

https://ttlc.intuit.com/questions/4059646-mortgage-interest-deduction-when-seller-financed

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

nlsmothers
New Member

If I purchased a home from my grandmother and she charges me 3% interest, do I need to send her a 1099? Can I claim it on my taxes? I make her a monthly payment at 3%

The house is a secured mortgage through a warranty deed. Does this make a difference?
jtax
Level 9

If I purchased a home from my grandmother and she charges me 3% interest, do I need to send her a 1099? Can I claim it on my taxes? I make her a monthly payment at 3%

The key thing is how is the loan secured. I don't understand how the loan is secured by a deed.

The type of deed that was used to covey ownership to you. It means that your grandmother guarantees it is good. (The other common deed type is a "quitclaim" did. In that the seller just gives up any claim to the property but does not guarantee that no one else has a claim to it. Warranty deeds are better for buyers).

Independent of how the property was transferred to your ownership, the requirement for deducting interest is that the LOAN be SECURED by the property in a legally binding way. Typically that is done by the buyer giving the lender a mortgage in writing and that mortgage being recorded at the registry of deeds.

But this can depend upon the laws of your particular state. The attorney who set this up for you (or any real estate attorney) can give you advice. If you have questions I recommend that you seek the advice of a lawyer in your jurisdiction. See for example some state differences here:

   <a rel="nofollow" target="_blank" href="https://realestate.findlaw.com/mortgages-equity-loans/what-is-a-mortgage-lien-.html">https://realest...>
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nlsmothers
New Member

If I purchased a home from my grandmother and she charges me 3% interest, do I need to send her a 1099? Can I claim it on my taxes? I make her a monthly payment at 3%

It is secured in a legally binding way through an estate. If we fail to make a payment, she can foreclose on the house. The lawyer did say we could use the amortization table that was provided to us OR we could provide her with a 1099. I just wasn’t sure how to go about using the amortization table when filing taxes (which is what my grandmother prefers we do).
nlsmothers
New Member

If I purchased a home from my grandmother and she charges me 3% interest, do I need to send her a 1099? Can I claim it on my taxes? I make her a monthly payment at 3%

It is recorded at the registry of deeds
jtax
Level 9

If I purchased a home from my grandmother and she charges me 3% interest, do I need to send her a 1099? Can I claim it on my taxes? I make her a monthly payment at 3%

Ok, I think you should consult your own legal advisor. I do not know what you mean by "through an estate." Do you have a life estate? Or do you mean trust? Or are you the sole legal owner.

I also do not agree that you have to give a 1099 to your grandmother unless you are in a business.

I don't know what you mean "give a 1099" OR use an amortization table. You have to figure out how much of each payment is principal and how much is interest. How you do that should be spelled out in the mortgage contract. Using an fixed amortization table seems like the easiest way to go, but frequently the amounts of P and I change based on what day you pay the loan. That's why making an occasional extra payment can save you huge interest over a  long large loan.

No matter what, you grandmother needs to report the interest received (not principal) as income. (Assuming she reported the gain in the year of sale or didn't have to because she lived there for enough time and the gain was < $250k). Reporting income is required even if there is no 1099.
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