Rental Property

[GTS1101]

Hi,

I have a client who is on the loan to a residental home owned by his daughter. His daughter is on title and the father has the loan. As I have understood you cannot deduct mortgage interest and prop taxes unless you are on title and the loan. With that in mind the daughter rented out the property this year. Yet because she is not on title she can't claim the interest and prop taxes. So how do we record the rental? On the father's return or the daugther's return. The daughter collected all the rent but she can't write off the interest. The property will be sold in 2007. What do we do for this one year as a rental prop? Show on the Father's return or the daughters?

Thanks for your help!

Greg

[jerome]

If the daughter is the one who collected the income, the daughter is the one who pays tax on the income. You can't assign income to someone else simply to avoid tax on the income.

And you cannot deduct an expense simply because you are trying to offset taxable income. For example, just because I got a speeding ticket because I was late for an important meeting at work does not all of a sudden make that expense deductible. The expense has to pass the deductibility test under the code before you can use it to offset taxable income.

[solomon]

Owner

The beneficial or equitable owner is entitled to the interest and property tax deductions. Sale should be reported on that person's return.

[jainen]

not a likely story

>>equitable owner is entitled to the interest and property tax deductions<<

This is not a likely story, unless some pieces are missing. Banks don't give out mortgage money without security, and they can't do that without the owner's signature. If the father transferred title after the loan was in place, the daughter's equitable interest is second to the mortgage and she is not entititled to the deduction. (Such a transfer typically defaults the loan, but that's a different issue.)

So, is the daughter the owner or not? Original post has it both ways: "daughter is on title.... she is not on title."

A couple of other missing pieces: We don't know what all the loan proceeds were used for, which could conceivably show that none of the interest is deductible anyway. And of course, original post carefully stepped around the question of who actually paid the interest.

[Gretel]

The beneficial or equitable owner is entitled to the interest and property tax deductions. Sale should be reported on that person's return.

I agree with the mortgage interest if daughter was legally obligated for to pay all expenses for the propertyand, in fact, did pay all expenses. I am not sure about taxes and I don't think the sale is deemed to be the daughter's.

I assume loan proceeds were used for the property.

[winnie]

Form instructions

The tax book has some examples on legal liability and HOME mortgage interest on pg 4-11. I know that is not exactly what you are asking.

Also, instructions for Sch E, line 12 and 13 tell how to report interest that was reported under a different id #. I have used this with co-owners of rental property who split the revenues and expenses on their personal returns.