Rental Property - Can you deduct interest if you are not on the loan?

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- chan.gene
  
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posted
17 years ago

Mon, Jul 17, 2006 3:59 PM

Hi everyone,

This problem is driving me absolutely mad - does anyone know if I can deduct mortgage on a rental property if my name is only on the deed?

This is for an investment property with my brother and I. I have insufficient credit, so it was easier to get funding with him only on the loan. Both of us have been added to the title. I am making payments towards the house (directly to the lender)

I've talked to a couple CPA's that claim this is possible and have done

it for their clients. There is also some case law to support this (Uslu v. Commissioner, T.C. Memo 1997-551, Arcade Realty Co. v. Commissioner, 35 T.C. 256 (1960)). However, the IRS clearly states(reference: Business Expenses, Chapter 5 Interest,

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that you must be "legallyliable for the debt". Thanks,

Gene

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- Paul Thomas, CPA
  
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posted
17 years ago

Mon, Jul 17, 2006 5:46 PM

wrote

Then the two of you are in business together? If so, then it's a default partnership (get those ducks in a row) and file a partnership tax return and deduct the interest accordingly.

You coulc be breaking all kinds of loan restrictions, but a wrap-around mortgage, where your brother has the loan, but you owe him. You would get the deduction, but he'd have income, it's possible, but it doesn't sound like you structured it that way.

Why don't you firm things up by talking to a real estate attorney.

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- Eugene Symons
  
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posted
17 years ago

Mon, Aug 21, 2006 7:05 PM

The IRS says, It has to be for you & by you, to be deductible! If you can substantiate this, you should be able to cover your deduction, even if it was not done exactly according to the proper way to do it! I would go for it based on their rules! I have had some audits & no problem with it! EDS