Father's second home or Daughter's principal residence?

[Mary A.]

Client provided the funds to buy a condo. Daughter lives in the condo. Title to the property is in the daughter's name as her personal residence (reason being because interest rate on a personal residence was lower). Client co-signed to pay the mortgage and in fact does pay the mortgage. There is no written agreement for a "shared equity" arrangement.

Interest paid can either be deducted as 1)on a second home or 2) investment interest. However, the client has very little investment income so in order to deduct the interest it would have to be as a second home.

Looking down the road two years: Condo sells. It has been the personal residence of the daughter. Title has been in her name. Can she exclude any gain up to $250,000?

So, if father claims second home interest deduction, is this father's second home - or daughter's principal residence?

Mary Ann Thomas

[Bees Knees]

If the father is paying the mortgage payment for the daughter, and the home is solely in the daughters name, and she is the one using it as a residence and not the father, the payments are gifts to the daughter. The father cannot take a deduction for these gifts, because he doesn't own the property. Co-signing a loan does not make the property his, and he cannot deduct taxes or interest unless he owns the property.