Property Taxes And Mortgage Interest Write Offs
The loan is under my parents' name however, I will be paying the mortgage and property taxes. Will I be able to deduct the mortgage interest and property taxes if I can prove that I'm the one paying these dues. Additionally, what proof is necessary? will cancelled checks suffice? Do I need to assume the loan?
Thank you .
How about a little more info. Is this a residential rental property? Or your home or your parents home? Whose name is the deed in?
bizboy
it's a residential property.
the deed is under my parents' name and it's their home, they just want me to take over the mortgage payments and property tax dues.
property is in So. Cal.
thank you
I am not an accountant but I do not think you would be able to write off the interest currently. The following conditions must be met to be able to deduct the mortgage interest on a house you live in (IRS pub 936):
1. You must file form 1040 and itemize your deductions on schedule A
2. You must be legally liable for the loan. You cannot deduct payments for someone else if you are not legally liable to make them. Both you and the lender must indend that the loan be repaid. In addition, there must be a true debtor-creditor relationship between you and the lender.
3. The mortgage must be a secured debt on qualified home.
NOW IF, your parents sold the home to you on a land contract, which was recorded and you made the payments to your parents which in turn made the payments to the lender--this would qualify.
You should definatly consult an accountant on how to accomplish what you are looking to do. This is certainly possible--you just need professional advise on how to do this.
Buying from his parents would mean an interest income to his parents. They may have to pay tax on it.
This is a case of which tax category the participants are in. There are different ways to work the deal, like myfrogger says, see a CPA for the best tax savings.
Here is a different way:
bossanova rents the house back to his parents at a fair rental price, then deducts the mortgage interest and taxes on a Schedule E, plus other expenses and depreciation. He could gift back $10,000 to each parent to make up what they paid him in rent. His parents don’t get to deduct the interest, but he gets to deduct not only the interest but the depreciation and maintenance expenses.
This is similar to the question: "Who Deducts The Interest On CFD?What If? ",By theREIkid, in this same forum, the interest balances out no matter how many wrap-arounds you do. I don’t think there is any way of structuring the deal so that the family unit (bosanova and his parents) can get anything more than effectively one interest deduction. I think it just depends on who in the family it benefits the most.
There are different rules deducting mortgage interest on a personal home than an investment home.
It is amost a given that you can deduct the interest if you were renting the place out or such, but in this case there are totally separate rules to follow.
We could discuss this all day or a simple call to your CPA could answer the question.
GOOD LUCK
Thank you for the responses.
what I fail to mention is that my parents will be moving into another home they've purchased but wants me to take over the mortgage and tax dues to their current home since they don't want to sell at this time.
since I'll be responsible for the mortgage and property taxes, again, can I take the deductions on these? or do I need to assume the loan to legally take the deductions?
Thanks again.
BossaNova:
Good to meet you.
Try having your parents look into setting up a simple living trust then transferring the Property's Title(Deed) into the Trust.
Have them to Assign you at least 10% beneficial interest in their trust plus draw up a Triple-Net Lease agreement from the Trustee to YOU and you will be allowed to Take the Mortgage Interest & Property Tax payments as deductions LAWFULLY....by IRC(Internal Revenue Code) 163 Sect. B rules.
This NNN-Lease will NOT be in violation of Due-On-Sale as there is No Sale and further you can lease it for no more than 3 Years without triggering the DOS.
Safely, Legally and No having to assume the existing mortgage loan.
BN - also try Googling or Yahooing for this up under: "landtrust" or visit - www.landtrust.net
I Hope this helps You!
Derrick Ali :-D
What a perfect solution for you!! Don't you love this site!
I am no accountant and you should have one if you are an investor. But my belief is that you may not take them on the current year, but can file an ammended return for the year of those reciepts. I also believe you can go back up to three years with these types of changes, but I'd have to call my acountant to verify these thoughts.
thanks, didn't think about filing an amended return