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    #1

    Name on mortgage

    (This is a different client than the one in mind for my other post.)

    Here's my thinking on client's situation. Parents are helping a son buy a home. They were going to co-sign, but that was more expensive so they purchased, put son on the title (second position) and took out the mortgage in their (parent's) name.

    It will be better for the parents to take as second home interest since (expecially this year) the interest will not be enough for the son to itemize. So, I am thinking that the parents should count as a second home since a family member will be living there.

    I know there was a case where it clearly showed in such situations that the son could count the mortgage since it was in reality for him, but that doesn't mean they must count it as the son's?

    Is there any hangups to my reasoning here?
    JG
    Tags: None
    #2
    I would think

    that as long as the son does not try to report the interest on his return the parents can get away with putting it on theirs. If one of the parents' ssn is on the mortgage statement there is no extra paperwork but if the son's ssn is there then he will need to issue a statement to his parents.

    Comment

      #3
      Originally posted by erchess View Post
      that as long as the son does not try to report the interest on his return the parents can get away with putting it on theirs..
      The parents do not want to get away with anything - that is why I'm asking fellow preparers their opinions.
      JG

      Comment

        #4
        JG, I don't see any problems if parents claim interest if they pay the mortgage. They should aIso pay the taxes. Your post almost sounded like to leave the possibility open to switch back and forth, which would be a bad idea.

        If later on sons wants to claim the interest they should enter into a contract and sons needs to make payments.

        Comment

          #5
          Apology to JG

          When "get away with" I didn't mean it the way you seem to have taken it. I meant that they would not be breaking the rules. I did not mean to imply that you and they were attempting to do something shady.

          I can see where you are coming from. People say that they can get away with this or that meaning that yes they are breaking a rule but for some reason or other they don't think they will receive the sanctions called for. People also say that they can get away with something in the sense that they will not be injured doing something that another might regard as dangerous or that might be dangerous for a less skilled person. I was careless in my use of language and I am sorry if I offended you.

          I still think my point was correct. - The parents can treat a mortgage that they pay as a mortgage on their second home even though they let their son or for that matter you or me live in said home. If one or the other of them owns the first social security number on the F1098, then no paperwork between son and parents is called for. If the son's ssn is first on the paperwork then he should issue his parents a F1098. I have seen situations similar to this one where the son expected to deduct the interest himself. I think it would be good if someone cautioned him that you can't deduct what you didn't pay. I deal at least weekly with people for whom that is not self evident. The people I have dealt with are not intentionally unethical but I would have to agree that they are uneducated as well as careless and or reckless with regard to their taxes.

          Comment

            #6
            Originally posted by erchess View Post
            When "get away with" I didn't mean it the way you seem to have taken it. I meant that they would not be breaking the rules. I did not mean to imply that you and they were attempting to do something shady.

            I can see where you are coming from. People say that they can get away with this or that meaning that yes they are breaking a rule but for some reason or other they don't think they will receive the sanctions called for. People also say that they can get away with something in the sense that they will not be injured doing something that another might regard as dangerous or that might be dangerous for a less skilled person. I was careless in my use of language and I am sorry if I offended you.
            No offense at all, just wanted some thoughts and I do appreciate your help. And I am sorry if I offended you while appearing to be offended!!

            I still think my point was correct. - The parents can treat a mortgage that they pay as a mortgage on their second home even though they let their son or for that matter you or me live in said home. If one or the other of them owns the first social security number on the F1098, then no paperwork between son and parents is called for. If the son's ssn is first on the paperwork then he should issue his parents a F1098. I have seen situations similar to this one where the son expected to deduct the interest himself. I think it would be good if someone cautioned him that you can't deduct what you didn't pay. I deal at least weekly with people for whom that is not self evident. The people I have dealt with are not intentionally unethical but I would have to agree that they are uneducated as well as careless and or reckless with regard to their taxes.
            This and Gabriele's post has made me think through a couple of things. Who really is paying the bills? I need to find that out.
            JG

            Comment

              #7
              JG, do you

              think it would be possible for the parents to "rent" the house to the son? Set it up so the rent equals the PITI and then parents could also depreciate home, etc??
              Just a thought.
              Larry

              Comment

                #8
                Thanks for your last post JG

                No offense taken here either - and if I may say so I think you are generally one of the more knowledgeable posters on this site - I look for threads you started or posted on.

                Comment

                  #9
                  don't think this is an option . . .

                  Originally posted by Larry M View Post
                  think it would be possible for the parents to "rent" the house to the son? Set it up so the rent equals the PITI and then parents could also depreciate home, etc??
                  Just a thought.
                  Larry
                  . . . because if the parents do not rent it out for fair market value, they are not allowed to claim expenses
                  Just because I look dumb does not mean I am not.

                  Comment

                    #10
                    Originally posted by travis bickle View Post
                    . . . because if the parents do not rent it out for fair market value, they are not allowed to claim expenses
                    Travis, aren't they allowed to offset Income with expenses but can not report a loss?
                    Last edited by BOB W; 12-07-2007, 04:21 PM.
                    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.

                    Comment

                      #11
                      thank you Bob

                      Originally posted by BOB W View Post
                      Travis, aren't they allowed to offset Income with expenses but can not report a loss?
                      I do not know how I came to have typed what I did. Thank you.

                      Here is the url for the IRS' Tax Topic 415 (rentals, personal days, relatives, etc):
                      Topic no. 415, Renting residential and vacation property | Internal Revenue Service
                      http://www.irs.gov/taxtopics/tc415.html
                      Topic No. 415 Renting Residential and Vacation Property

                      and that url clearly supports your -- correct -- statement.

                      Depending on who pays the mortgage interest, taxes, casualty losses, etc. it may be more advantageous to itemize those amounts on Sch A.

                      Again, thanks
                      Just because I look dumb does not mean I am not.

                      Comment

                        #12
                        Travis, you were correct the first time. See Sec. 280A(d). Interest and taxes only on Sch A when below FMR.
                        Last edited by solomon; 12-07-2007, 11:42 PM. Reason: Addition

                        Comment

                          #13
                          I did a little research and could not find how to handle a "below fmv rental to a relative".

                          But I did find this:

                          Not Rented for Profit

                          If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. You cannot carry forward to the next year any rental expenses that are more than your rental income for the year. For more information about the rules for an activity not engaged in for profit, see chapter 1 of Publication 535.

                          Where to report. Report your not-for-profit rental income on Form 1040, line 21. You can include your mortgage interest (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Form 1040, Schedule A, Itemized Deductions, if you itemize your deductions.

                          Claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Form 1040, Schedule A, line 22. You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income.

                          So rental ( not for profit) is handled the same as a hobby not for profit? I also found in my readings that accrual is the method for reporting income with related parties, even with below market rentals.
                          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.

                          Comment

                            #14
                            BOB W - Read the following court case regarding renting below fair market rental:

                            404 Error Page | United States Tax Court
                            http://www.ustaxcourt.gov/InOpHistoric/JACKSON1abc.TCM.WPD.pdf
                            404 Error Page

                            Comment

                              #15
                              TheTaxBook 7-7

                              This is talked about in TTB 7-7. Use of a dwelling unit by any individual who pays less than fair rental value is considered personal use by the owner; therefore no expenses attributable to that period rental are deductible. Rental income must nevertheless be reported as income. IRC 280A(d)(2).

                              Also talks about the court case that Solomon refers to on the same page.

                              Comment

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