A tax court decision shows how to save a mortgage interest deduction when one family member helps another obtain a home and mortgage payments are not made by the person whose name is on the mortgage.
Facts: A married couple found that they could not obtain a mortgage on the home they wanted to buy. The husband's brother then bought the home and let the couple live in it. The couple made all the mortgage payments on the house, even though both the mortgage and title to the home were in the brother's name.
The couple also paid all other ownership related expenses, such as property taxes, utilities, and so on, and acted in all ways as the owners of the home.
But when they tried to deduct the mortgage interest they paid, the IRS disallowed the deduction because they weren't legally obligated to pay the mortgage.
Tax Court: The couple were legally obligated to pay the mortgage because if they failed to do so, the brother would have a cause of action to evict them, and they would lose the home.
Because they had assumed all the rights, and obligations of home ownership, and the brother hadn't taken the mortgage deduction, they could take the deduction.
Rodney Ross
rrossandassociates.com
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