I have 2 long-time tax clients, mother and daughter. Mother owned a home with a mortgage but died in May 2014. Adult daughter is sole beneficiary; there is a will, no trust. However, daughter is just now getting around to seeing a lawyer to prepare estate (not a large estate) for probate. As of now (9 months later!) the estate doesn't even have an EIN. Meanwhile daughter is living in the home and paying the mortgage and property taxes. A 1098 was received from the bank holding the mortgage showing interest of over $10k as well as property taxes that were paid. All was in the name and SSN of the deceased mother. I presume the lender doesn't even know that the mortgage holder is deceased. Is there any way the daughter could deduct the interest payments she made after mother died? If not, can the mother's return include a deduction for the whole year's mortgage interest or just the 5 months she was alive?
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The mother's return can't include a deduction for the interest portion of payments made after her date of death. As for the interest paid after that, the estate would be the correct taxpayer to deduct it up until such time as the house is/was transferred into the daughter's name via probate. After that the daughter should deduct the interest since she will be the owner of the house as well as the successor obligor on the mortgage.Roland Slugg
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If she has documentation that she has been making the payments the bank may be willing to change the 1098 to her SSN. As for the property they may make her prove that she is sole-survivor and that the property will revert to her in probate.Believe nothing you have not personally researched and verified.Comment
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What about the daughter being the “equitable” owner... would that not work to deduct the interest and property taxes?Comment
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Thanks for good leads
I appreciate the ideas from the 3 of you. I will have to research "equitable owner", a concept I am not familiar with. Also I will suggest she talk to the financial institution about re-issuing the 1098 but somehow doubt that will happen. She has made payments regularly so should be in good standing with them. Maybe when she gets around to talking to a lawyer in a few days he/she will have some thoughts...and maybe it would be better for all concerned if the lawyer does the relevant individual tax returns.Comment
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Can you
take mortgage interest on a1041. I thought PPC's 1041 said it is very questionable, but some think you can. Has this changed recently??Originally posted by Roland Slugg View PostComment
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Equitable or Beneficial Ownership Question
I have seen this discussed, but never had to apply these rules before.Originally posted by geekgirldany View Post
Suppose there is a personal residence with deductible mortgage interest and property taxes. Mom and her two daughters and son-in-law are on the deed. Mom and one daughter are on the mortgage. Mom was on the deed and the mortgage solely for purpose of obtaining the loan. Two daughters and son live in the home and share the cost of the home, pay the mortgage, pay the taxes, do the repairs, and pay the expenses of running the home (utilities and maintenance).
In this case, am I right that the daughters and son-in-law will be considered equitable owners?
I assume that all of them are liable for the taxes since they are all on the deed, but the mother was only on the deed so she could be on the mortgage.
In such a scenario where the two daughters and son-in-law each paid one-third of the interest and one-third of the taxes, can I use this rule to claim deductions for this? My reading is that they would be entitled to the interest and property tax deductions because of their beneficial ownership in the property. However, I have also read that the debtor creditor relationship is between the parent and the individuals with beneficial ownership. Does that mean that one child reports this as 1098 interest and the other two report that they are paying interest to the mother? That makes no sense at all since she is not receiving any interest but they are not receiving a 1098 either.
Just trying to sort this out in my head. Thanks.Comment
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it would if she is on the deed but the OP indicates she isn'tOriginally posted by geekgirldany View PostBelieve nothing you have not personally researched and verified.Comment
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They are all on the deed so they have ownership. They can all take expenses that they pay. the 1098 needs to be reported in full on each return and adjusted (with a detailed statement) to the amount each pays. I recommend that they have a written contract that details all of this income and expense issues.Originally posted by tpert View PostBelieve nothing you have not personally researched and verified.Comment
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From my reading of this:Originally posted by taxea View Post
The child does not have to be on the deed if the conditions listed in #4 are met.Comment
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Original poster--still hard to be sure
I appreciate the comments and the article cited by geekgirldany was interesting and something I printed out for my files. I'm not exactly sure how my client could satisfy all the criteria, however. I did check with the daughter and she is not on the deed or mortgage of her mother's property but she is the sole beneficiary of her mother's will and the personal representative. Unfortunately nothing has been done to begin probate proceedings yet, not even obtain an EIN for the estate. I have suggested she have a lawyer do all relevant tax returns; he/she might be more willing than I am to "push the envelope."Comment
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You can take mortgage interest on a 1041 if the house passed to the estate or trust (not directly to an heir or beneficiary). If it passed under operation of law and/or the will to an heir, then that heir takes the deduction.Originally posted by JON View PostComment
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