Client family member needed $500000 for business purposes. Client took out mortgage for that amount. Family member is required to pay the mortgage. the interest amounts to about $24000. The mortgage interest is not deductible since not incurred to buy or improve home but could be offset by including the $24000 as interest income resulting in a neutral regular tax effect. The question of AMT does arise since that interst would be an add-back for AMT purposes. Can we simply opt out of claiming the interest and not reflect the interest income. Thanks for any thoughts.
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Mortgage on what?Originally posted by ledger View Post
So, was it on cient's home? When you say not deductible you mean because of AMT issue?The mortgage interest is not deductible since not incurred to buy or improve home
I have no idea what you are talking about. Who is getting the income? Is the "mortgage" is really an internal company loan?..but could be offset by including the $24000 as interest income resulting in a neutral regular tax effect. The question of AMT does arise since that interst would be an add-back for AMT purposes. Can we simply opt out of claiming the interest and not reflect the interest income. Thanks for any thoughts.JG -
Mortgage interest
The loan is from parent to son. Parents mortgaged their home to raise the amount needed.Son is paying the mortgage per agreement with parents. We originally thought to include the mortgage interest in schedule A (because of matching with the 1098 that will be filed with the IRS) & offset it with a like-amount interest on schedule B. This results in a tax neutral effect. Since there is no economic benefit to the parents from this transaction, we are considering just to include a note in the return to explain why the mortgage interest doesn't show up on their return--I'm assuming that IRS would raise a question or even adjust the tax liability for the presumed "missed" mortgage interest that was reported to them on form 1098. Thanks for your comments.Comment
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If the loan is paid by the son, the son used the principal for his business, then he could count the interest on his business. If he did that then the parents would not count the mortgage interest on their taxes. The IRS won't try to figure out why the parents didn't count the mortgage, please don't put a note in about it.Originally posted by ledger View Post
No one can count $24,000 of interest income but the mortgage company. No one got $24,000 income in the family. They are paying it not receiving it.
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Added part:
The above was a really bad post. I will shutup for a while and not answer until I put my thinking cap on. I actually have this situation - son is client - and the parents don't have to file and the interest is much less. I totally forgot about that part of it - interest to parents. I feel like deleting this post but humiliation is good for me.JGComment
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But wait! The son isn't liable for the mortgage, and his payment to the mortgage company isn't interest, and it's not gonna be deductible this way....Comment
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unless son has written loan agreement with parents, which can be enforced. Then payments have to go parents who would need to report interest income on Sch.B. Son would than report interest expense on his business, assuming funds were transferred to his business in the first place.
Looks like parents are your clients. Also looks like payments were made from son to bank directly. If the intent was to have a legal loan with parents I would see to get all ducks in the row now, document and take business interest expense on son's business.Comment
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