Mortgage Interest Deduction - Joint Property Owners

[S T]

Two brothers purchased a “personal residence” both brothers on loan, one brother single and the other brother – married

Deed recorded in both names, loan in both names They equally share the mortgage payment and property taxes, insurance, etc 50/50.

As we know the 1098 Mortgage Interest form is issued in the primary name and that social security number

Here is the question - relating to year 2016

Both brothers/family occupied the property as their primary residence in 2016. At the end of 2016, there was a “falling out” and the Single brother moved out, so no longer his personal residence moving forward.

For 2016, each brothers should be able to deduct 50% of the mortgage interest and property taxes, correct? They did equally pay and resided in the property.

For 2017, the brother that moved out and no longer claiming the property as personal residence, however, still paying his 50% of mortgage interest and property tax, does this now become an investment property for this taxpayer?

Note - as we have all often stated “do not go into business and financial arrangements with friends and/or family”

My taxpayper the Single brother now does not want anything to do with the transaction and is asking if there is any tax consequences to “NOT” claiming his share of the mortage interest and property tax for year 2016. He will continue to pay 50% of expenses - just not occupy the home as Personal Residence. My answer would be “NO”, however, I would not like for him to lose any tax benefits moving forward, for not stating a position on his tax return, i.e., if and when the property is sold?

Thoughts


Sandy

[Lion]

Unless he already owns a second home with a higher mortgage, he can deduct his 2017 mortgage payments on Sch A. I'm not so sure it's now investment property. Is he charging his brother rent for the half your client owns? It sounds like personal use property if his brother's family is living there. He can deduct his real estate taxes paid on Sch A no matter how many houses he owns.

[S T]

My taxpayer the single brother only has 50% ownership in this property and it was intended that it be his personal residence shared with his brother/wife. Brother/wife own the other 50% and are claiming as their personal residence.

No rent charges involved

Shared property ownership expenses as in Mortgage Int, Prop Tax, Insurance, Maintenace/repairs etc.

Sandy

[Kram BergGold]

My View

In 2017 it is neither rental, nor investment It is not rental as there is no rent. It is not investment because his brother lives there. It is a house, which as was stated, interest is deductible on Schedule A, as one of any two homes for which interest can be claimed.

[Roland Slugg]

My taxpayer the Single brother now does not want anything to do with the transaction and is asking if there is any tax consequences to “NOT” claiming his share of the mortgage interest and property tax for year 2016. My answer would be “NO.”

Well, of course there will be tax consequences. He will pay more taxes if he doesn't deduct the interest and property taxes he paid.

However, I would not like for him to lose any tax benefits moving forward, for not stating a position on his tax return, i.e., if and when the property is sold?

If his brother starts paying FMR, he can treat the property as a legitimate rental/investment property. Then when the property is later sold, he will have a taxable gain or a deductible loss. If he doesn't charge his brother any rent, or charges less than FMR, then the rules of Code §280A will apply. Even then, however, he will still be allowed to deduct the mortgage interest and real estate taxes he pays. However, if the property is later sold at a loss, the loss will be a personal, non-deductible capital loss.

Finally, if his share of the house become a rental, either because his brother starts paying FMR or later on if brother moves out and unrelated tenants move in, he should determine the property's FMV as of the date the property became (or becomes) a rental in his hands. If the property's FMV at that time is lower than his cost basis, it will affect his annual depreciation deduction, and that lower value will also be used to determine loss on its sale if it is eventually sold at a loss.

[S T]

Thanks!

That provides some much needed information to pass on to MY taxpayer - As stated it is NOT a nice nice situation entered into in 2016 - Not a good idea to enter into transactions with Family!
Sandy

[taxmom34]

is this a single family residence or a duplex? did they all live together in a single family home? the bank issues 1098 to only the other brother.

[liberty]

I have a client, mom bought a home for daughter to live. in 2019 she signed a contract for deed with the daughter. Her daughter is taking over the mortgage payment. But 1098 still issued in mom's SSN. Can mom deduct the mortgage interest? Or should mom contact the mortgage company to reissue 1098 in daughter's name?

[Lion]

Mom can deduct the mortgage interest to the extent that mom paid the mortgage payment.