Rental Property owned by 2 taxpayers

[Bonnie]

I have two new customers, both single, who have bought a rental house together. The deed to the house is in both names. The loan is only in one name. They want to split everthing and use on both tax returns. I told them I didn't think they could do this but that I would check. Has anyone ever dealt with anything similiar to this?

Thanks
Bonnie

[DTS]

Yes...

Bonnie,

I have this situation all the time. I do split everything down the middle or according to who paid what. On the mortgage interest and RE taxes, you can put "co-owned" and the ss# of the other owner.

I don't think you'll have any problems.

Dennis

[S T]

Loan

Doesn't there have to be a financial or legal liability for the loan, in order to deduct the interest?? Regardless of whether it is a primary residence or rental property and regardless of whether both parties are on the deed. Seems like we had this discussion before, I have had one on second residence. Someone posted that if not on the loan could not deduct the interest.

I would be interested in more thoughts on this subject, as it happens all the time.

Sandy

[erchess]

There is such a thing as an

oral contract. Oral contracts, when they legally exist, are binding. A lawyer in OP's state could give guidance on when one is in force in that state. A pair of lawyers could help them draw up a valid and satisfactory contract if it seems that there is not one at the moment.

I am also amazed that someone loaned money on a house with two owners with only one owner obligated to pay. If OP is correct, it seems to me as though responsible party could default on the loan and the other owner could block its sale, making foreclosure effectively impossible. If on the other hand both owners are obligated to pay, then clearly each is entitled to deduct half of the interest.

[jainen]

Some'in' fishy here

>>I am also amazed that someone loaned money on a house with two owners with only one owner obligated to pay<<

Me too. But Dennis says where he lives they do it all the time. How's it work, Dennis? I guess if it's not joint tenancy the bank could foreclose on one partner and become a tenant-in-common with the other. Or the other owner could subordinate his interest to the loan, but wouldn't the bank want him to co-sign unless he's already a real deadbeat, and why would they loan to someone whose partner is a deadbeat? Is it even a bank--they make their money selling the loan, and this one doesn't meet government guidelines for securitizing. Some'in' fishy here.

[S T]

Not just in Calif

Jainen,

Not only what I see here in Calif, but I just had a long time client of mine, refinance and obtain the loan strictly in their name without the other owner. That was in Texas.

I asked how were you able to make that happen, and he said connections. If you pull title, clearly has the t/p and the other party on the deed, but the loan was refinanced in total only the t/p name. This particular one is not a huge problem as it was with a parent, and the parent is gifting out his interest in 2007 to the son. I did not a allow the parent to claim any part of the interest on the refinance in 2006 and advised them of same.

But with all the creative lending, loan brokers that should not be in business and needless to say the lending institutions (sub-prime) that are in trouble, this could be part of the problem. New Century was one of these lenders on this particular transaction. Does that tell you anything!

Sandy

[Chief]

Co-owners

I just finished one of these co-owner returns. This property tho was paid for but had a mother 50% son 25% and daughter 25% co-owners. At first I thought it was a partnership but learned later it was a rental commercial property of co-owners for the purpose or sharing expenses and income. Although at federal level no partnership agreement is required at the state level an official partnership agreement is required for a partnership. That is true for some states. The income, expenses and depreciation were all reported on Schedule E.
I suspect the ownership was bequeathed to the co-owners in the percentage of ownership.
It will be interesting to see how all this plays out when the mother is no longer in the picture.