How do you handle this?

[AccTaxMan]

Sisters Mary and Ann lives together in a house. The house and the loan is under Mary's name only. They agree to share the cost of the house equally. So, every month, Mary writes a check to Ann for half of the mortgage payment and then Ann writes a check for the full payment to pay the bank. As for the property tax, Mary pays one payment and Ann pays the other payment every year.

Mary paid half of the mortgage, But she did not write the check directly to the bank. Can she still claim the mortgage interest deduction?

Ann paid half of the mortgage and she wrote the check to pay the mortgage. But her name is not on the title of the house and the loan. Can she claim the deduction of the mortgage interest and the property tax?

Mary says she see the portion of mortgage payment and property tax paid by Ann as rent. Can she reports what Ann has paid for the mortgage and the property tax as her rental income., and then she claim the full amount of mortgage interest and property tax as her expenses?

Sometimes, you just wonder how something should be really simple and straight forward can become so complicated.

[oceanlovin'ea]

handle correctly

If they really wanted to do this by the book since the deed and mortgage are both in Mary's name, she should be the one to write the check to the mortgage company.
Mary should also pay the real estate taxes.

Ann should write her a check for half the mortgage payment and then a check for half the taxes.

I guess Mary could do nominee interest to Ann for half the mortgage interest. Then she could claim that part of the mortgage interest.

But it isn't her house or her loan so how can it be deductible for her?

I have 2 couples who own a house together. It is a mother and her husband and her son and his wife. I think mother and husband and son are on the deed and mortgage. He married after they built the house. Their arrangement is that one year mother and husband claim mortgage interest and taxes. The next year son and wife claim it. It has worked out fine for them. No arguments...very cooperative.

Linda, EA

[cfsadvsr]

What I have done in situations such as this is to have the party who is the owner reimburse the other party for the amount of difference the 50% makes in the owner's return. Obviously this takes trust.
Otherwise, as long as they agree, the non-owner may take her 50% of both interest and taxes provided she can prove that she is paying the 50%.
In this case it would be better to have an agreement drawn up between them. the non-owner will most likely be harassed by the IRS, but the service has accepted proof of payment in many situations even though the person is neither on the deed nor on the note. Most of these cases have involved parents.

[jaybird]

Deductablitly lies entirely who is responsible for the liability. It appears that Mary is liabile for the mortgage payment and the property taxes because she is on the loan and title. I would side with Mary getting the full deduction as she is 100% liable, regardless of who pays it. Look at the bottom right page in TTB page 4-11.

[ttbtaxes]

It is entirely possible that the beneficial owner, and not the legal owner, of the property is the one entitled to the deduction. You need to determine who is the beneficial owner of the property. Reg § 1.163-1(b)

Here is more information about it including many threads about this very issue:

http://www.taxalmanac.org/index.php/Equitable_or_Beneficial_Ownership

[AccTaxMan]

It is entirely possible that the beneficial owner, and not the legal owner, of the property is the one entitled to the deduction. You need to determine who is the beneficial owner of the property. Reg § 1.163-1(b)

Here is more information about it including many threads about this very issue:

http://www.taxalmanac.org/index.php/...cial_Ownership

Thank you for the information.

But I think we have to keep in mind that, in reference to your example in the article, if we claim the interest and tax deduction for the son based on the fact that he is the beneficial owner, we should expect inquiry from the IRS down the road because the son's SSN is not on the loan and therefore the tax return will be picked out during the computer matching. We will have to make a case and convince the IRS to allow the deduction based on the beneficial owner argument. It's going to be a long fight.

[joanmcq]

the OP isn't about beneficial ownership; Mary owns the house, Mary has the mortgage, and Mary really ought to write the checks.

[ttbtaxes]

My post had nothing to do with the original poster. I was trying to clarify the notion that only the person who owns the house, or is obligated under the mortgage, can claim mortgage interest (or property taxes).

[AccTaxMan]

the OP isn't about beneficial ownership; Mary owns the house, Mary has the mortgage, and Mary really ought to write the checks.

Yes she did not write the checks to the bank. But she did reimburse half of the payments to her sister who wrote the checks. Would you claim half of the deduction for her?