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This randomly popped into my head for some reason, but I was having a conversation with my buddy the other day and he asked me a question and I did not have an answer for him. I am not a tax "professional"...Ha!
Anyway, my buddy had poor credit(real poor) and was not able to obtain a mortgage because of this. Even though he had sold his house and was at the time going to put down more than 50% of the purchase price, he still was unable to obtain a mortgage, (at least one with a reasonable % rate)
So, long story short, his father got the mortgage on the house and added my friend and his wife to the deed as "tenants in common".
My friend wanted to know if he could still write off the interest and property taxes. He pays the mortgage and taxes, all legitimate, through his bank account.
I didn't have an answer for him, so I'm wondering if anyone here would know if he could do this. I told him to ask his accountant, but he said he doesn't have one, and he uses "turbo tax" or one of those online return sites, I don't remember which one.
He's afraid to go to jail ha!
'You cannot deduct interest you pay for someone else if you are not legally liable to pay it.'
I am pretty sure that your friend can change some things to make himself the liable party, but he ought to check with an attorney and tax professional to see if the primary lender has to agree to this...
Location: Stuck on the East Coast, hoping to head West
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re the interest: The IRS does have a provision for "equitable owner". Here's a quote from IRS Reg
Regulation 1.163-1(b) reads, "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.
So if your friend pays the interest and has the canceled checks to prove it, he could claim the deduction and attach a letter of explanation to his return. Equitable owner could be proved by his name on the house and the fact that he lives there. Alternatively, if his father isn't paying the mortgage, he can't claim the deduction even if his son can't. The deduction is lost.
Property tax isn't related to mortgage interest, there are different rules. If he owns the property and is legally required to pay the property taxes (and does pay the taxes), then he can take that deduction.
But, seriously, he should contact a tax professional.
I had a friend in a similar situation a few years ago. He lived in a home, made the mortgage payments directly to the mortgage company, paid the property taxes, etc., but his name wasn't on the loan. I did his tax return and he did claim the mortgage interest on his schedule A. He had a written letter from the owners stating that he could deduct the interest and that they weren't going to.
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