High income sister moves in with low income sister and takes over paying the mortgage. Title of house stays in low income sister's name and 1098 is issued in her name. Since this is now high income sister's princ residence can she take the related deductions?
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John -
NO.....She is not liable nor owner of residence for either RE Taxes or Mortgage interest.Last edited by BOB W; 02-28-2015, 11:35 AM.This post is for discussion purposes only and should be verified with other sources before actual use.
Many times I post additional info on the post, Click on "message board" for updated content. -
That's what I said
Yeah...thanks, that's what I told her when she was in for her tax appointment...but she insisted that I "check it out". Thanks!JohnComment
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do they have any detailed agreement or is this in lieu of rent?Believe nothing you have not personally researched and verified.Comment
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Well, hold on here just one minute.
Yes, as Bob said, the rules say that the person taking the deduction has to be legally liable for the debt. But the courts don't always see that as a black and white rule.
In TC Memo 1997-551, a couple could not get financing for their home so the brother bought the home in his name, and the couple made all of the payments. The court allowed the couple to deduct the mortgage interest because they were obligated to the brother to make the payments on their principal residence.
In TC Summary 2012-17, the taxpayer's parents had legal title to the house that the taxpayer was living in. The court allowed the taxpayer to deduct mortgage interest because he was legally obligated to make the mortgage payments to his parents.
So just moving in and living with sister is not enough. But if both sisters have an agreement that they each own the house and are each obligated to pay the mortgage, I could see making a case for the one not on the legal title taking the deductions for her half.
On the other hand, as taxea said, it could be a payment in lieu of rent, which could cause problems for the low income sister having to report rental income....??Last edited by Bees Knees; 03-01-2015, 09:05 AM.Comment
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This might work
So if sisters have an agreement that the high income sis will pay the mortgage "in lieu of rent", then low income sis reports the rental income we should be fine. Low income sis only has SS and a small pension...taxable should be small, maybe zero. I'll run the numbers and see.JohnComment
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Well, treating it as rent may not be bad for the low income sis, if rental income is still too low to pay any tax, but I'm not sure what you think the high income sis gains. Rent is not deductible for high income sis. If the agreement is high income sis is paying the mortgage in lieu of rent, that means high income sis is paying rent, not mortgage interest, so no deduction allowed for high income sis.Originally posted by John3cpa View Post
The only way it would give high income sis a tax benefit is if both sisters agree to jointly own the home, in which case you no longer have mortgage paid in lieu of rent.Comment
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Well, duh to me!
You are absolutely correct. (what was I thinking?) I will stick to my original reply to them when they came in for appointment. I know the low income sis wants to keep property in her name for her kids and not split it with sister. Thanks, Bees, for hanging in there with me on this one.JohnComment
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