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dorwig
Returning Member

Interest and Taxes

I purchased a house with cash this year and I am the mortgage lender for this property to my son and his wife.  I charge them a monthly payment that includes principal, interest and taxes.  My assumptions and questions when filing taxes are:

1.  I plan to claim the interest portion of the payment as income.  Can my son deduct as mortgage expense on his income taxes?

2.  I do not plan on claiming the principal and taxes portion as income on my taxes?  Or should I claim the taxes portion and then deduct the taxes to zero out?

3.  Or should my son claim the taxes even though my name is on the deed?

I could use some direction from someone please

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2 Replies
NicolleR1
Employee Tax Expert

Interest and Taxes

To clarify your questions, since you are considered the landlord and your son the tenant, you will need to file a Schedule E for rental income. You will include the monthly payments received from your son, as rental income. You can then claim expenses against that income, such as interest, taxes, and mortgage insurance premiums paid. You might be able to claim other expenses as they relate to the portion that's being rented, such as (Utilities if they are being included as part of the rent, cleaning, and maintenance, water bill, repairs, etc.). 

 

For better clarification of each question: 

 

1) You won't claim the interest as income. Instead, you will claim the full monthly payment received as rental income. Your son can not deduct mortgage expenses on his income tax. He might be able to get a credit for rent paid if his state allows from rent deduction credit (not all states have this credit)

2) You cannot deduct the principal portion as an expense. You can deduct taxes, insurance premiums, interest, and points paid. 

3) Your son cannot claim the taxes since he isn't the owner of the property, nor is he listed on the 1098 mortgage statement. 

dorwig
Returning Member

Interest and Taxes

That clarification does not help.  The value of the house is $380,000 that I paid cash and am the mortgage holder for my son.  His payments are $2400.  Breakdown:

 

$500 Taxes

$94.87 Homeowner insurance

$1600 5% Interest (Approx., varies per month)

$205.13 Principal

 

If I claim the entire $2400 and deduct the taxes, insurance and interest that mean my income would be the principal which is wrong.

I am the mortgage lender to my son.  So the interest would be my income.

The taxes and insurance would then also be my income and then offset as expenses.

The principle would then be me turning over equity to my son.

So basically I would need to create the same form that a mortgage lender creates for a homeowner.

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