Taxpayer's parents added his name to the title of their home in 2006. Since then, taxpayer has been making the mortgage payments. But his name is still not on the loan. Taxpayer has tried to contact the lender. They told him the only way to add his name is to refinance the loan but then they would have to pay for the points and other expenses. So the situation is that taxpayer has his name on the property title. Taxpayer paid for all the mortgage interest. But taxpayer's name is still not on the loan. Does it mean there is no way he can claim the mortgage interest deduction?
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From TTB 4-11
Legal Liability to Make Payments
A taxpayer must be legally liable for the loan to deduct interest on
a home mortgage. Payments made on a loan in which the taxpayer
is not directly liable are deductible only if the taxpayer is the legal
or equitable owner of the real estate. [Reg. §1.163-1(b)]
Example: Murphy lives in his mother’s house and is not listed on the
house title or mortgage. Murphy makes her mortgage payments because
he is supporting her as his dependent. Murphy cannot deduct
the interest as home mortgage interest because he is not liable for
the debt and is not a co-owner of the house.
Court Case: Taxpayer could not obtain financing to purchase a home
due to filing bankruptcy. The taxpayer’s brother obtained financing and
took legal title to the property. The taxpayer occupied the home, made
all mortgage payments, and paid all maintenance expenses. The court
allowed the taxpayer to deduct the mortgage interest because he was
obligated to make the mortgage payments per an oral agreement he had
made with his brother. (Uslu, U.S. Tax Court, December 16, 1997)
Comment