Mortgage Interest Deduction

[Questionguy101]

Father and son bought a house together and have been using it as their main home. Both of their names are on the title and the mortgage.

How would you handle the situation if the son has paid for all the mortgage payments?

(1) Son claims 100% of the mortgage interest deduction since he has paid for 100% of it.

or

(2) Father still claims 50% (since he is 50% owner of the house) and son claims his ownership share of the other 50%. The 50% of mortgage payments that son has paid for his father is considered gift.

Which one is correct?

[Gretel]

I think either one could be correct as long as the mortgage is not more than $550,000.

[Roberts]

JMO but I would avoid the 50/50 split. I'd imagine they would be better off if one took the entire deduction by itemizing and the other took the standard deduction instead of both trying to itemize.

[appelman]

First of all.

I don't believe anyone can deduct mortgage interest that they do not actually pay. If there is joint and several liability on the mortgage, the interest can be deducted by the person who pays it. If there is not joint liability, or if the son is entitled to reimbursement from his father, he can only deduct his share, and nobody will be able to deduct the rest.

[Kram BergGold]

Apelman has it right

Apelman has it right.

[ttbtaxes]

Dad would be precluded from claiming interest or taxes if the son paid them all and wanted to take the entire deduction (Rev. Rul. 71-268). I don't see why the dad couldn't claim 50% of the interest and taxes if the son treated one half of the payments as a gift and filed gift tax returns.

[appelman]

I'm not so sure about the gift scheme.

A Tax Court ruling allowed a daughter to deduct taxes paid directly to the taxing authority by her mother, treating the mother's payment as a gift to her daughter. In that case, however, the mother had no ownership interest in the property and was not herself eligible to claim a deduction. In the case under discussion here, the son is entitled to claim the entire deduction. That may make a significant difference.

[Roland Slugg]

Each may deduct the interest he actually pays. The key requirement is that the person claiming the deduction must have a legal or equitable ownership in the property subject to the mortgage. He need not be directly liable on the mortgage. See Regs. 1.163-1(b).

A recent Tax Court case affirmed this and even ruled that a taxpayer is entitled to deduct mortgage interest he pays (subject, of course, to the $1,000,000 + $100,000 limiitations) even if it exceeds his proportionate share of the mortgage interest. (Conrad Y. Edosada, TC Summary Opinion 2012-17)