Can Daughter Deduct This Interest?

  1. Father and adult daughter jointly purchase house. Both names are on the title.
  2. Only father's name is on the mortgage Jan-Oct 2011. Mortgage was refinanced solely by daughter in Oct 2011.
  3. Daughter lived alone in house throughout all 2011.
  4. Daughter made all 12 monthly payments in 2011.
  5. Father received a 1098 for the Jan-Oct period (including RE taxes) under his SSN; daughter received a 1098 for the Nov-Dec period under her SSN.

I understand the general rule that says you must be both liable for the mortgage and actually pay the mortgage to be able to take the deduction. Given these facts and circumstances, is there any way the daughter can take this deduction? (Father does not need deduction and would not contest his daughter's use of this deduction.)

If so, how is it reported on Schedule A?

Reply to
R. Pile
Loading thread data ...

This may be dependent on your state's property ownership laws. Where I am, all owners on the title deed are responsible for any mortgage against the property from its acquisition even if not stated in the mortgage paperwork.

Reply to
D. Stussy

I would like to know what state law can make an individual liable for a debt of someone else. This is contrary to what I ever learned. If you do not sign or cosign the note, then a lender has absolutely no recourse against you. It doesn't matter that you may have an ownership interest. In fact, because the mortgage is superior to the ownership interest, the other owners can't stop the lender from foreclosing and selling the property to satisfy the debt.

Reply to
Alan

There are several layers to this issue. First of all, I believe Stussy posts from California. CA is a non-recourse state. The interest of anyone who goes on title to property after a mortgage is recorded holds his interest subject to (i.e. responsible for paying) the mortgage. So even if he has not signed the mortgage, his share of the equity can be taken to satisfy the mortgage.

Additionally, California is a community property state. Each spouse is liable for the debts of the community, even if only one of the spouses signed the note. This is similar to general partnerships, where one partner acting on behalf of the partnership can incur an obligation for which the other partners are jointly liable, even if they don't sign the note or agreement. ___ Stu

formatting link

Reply to
Stuart A. Bronstein

I'm not a lawyer. I agree that one's ownership is at risk if the borrower defaults. That said, I don't see how that makes the owner liable for the debt. If he was liable for the debt on a recourse loan then the lender could go after his other assets. The lender can not do that. Every owner of property who carries no debt on the property runs the risk that his interest could be lost in a foreclosure if the borrower defaults. I don't see how this is relevant to whether you can deduct interest paid on a debt that you have no obligation to pay.

The definition of secured debt is in the regs and includes the following:

Secured debt? (1) In general. For purposes of this section, the term ?secured debt? means a debt that is on the security of any instrument (such as a mortgage, deed of trust, or land contract)? (i) That makes the interest of the debtor in the qualified residence specific security for the payment of the debt,

If you are not the debtor, then you can't have secured debt.

Reply to
Alan

Also note that I was talking about acquisition debt ONLY. There is no way for a co-owner to encumber a property at purchase without permission of the other co-owners (and that permission makes them liable as co-signers). A lender upon default can force the sale of the property regardless of how it's owned.

With equity debt default, the result may be different. The lender may substitute himself for the borrower. Whether a sale in that case can be forced is a matter of law. However, I practice taxes (as an enrolled agent), not law.

Matters of property ownership are matters of state law. Yes, I am in California.

Reply to
D. Stussy

No, it does not. If you and I jointly buy a business property, and I put in my share in cash and you borrow half of your share (with my permission), then when the property loses its value, you don't pay and I don't care to pay on the now-worthless property, the lender can take the property but can't go after my other assets. Hence, I am not liable as a co-signer.

Seth

Reply to
Seth

If your partner put the business up as collateral for the loan, the lender normally won't agree to lend the money unless you also go on as a principle or at least a co-signer. So while in theory you are correct, in practice it's not normally possible.

___ Stu

formatting link

Reply to
Stuart A. Bronstein

My partner is putting a piece of business real estate up as collateral, and borrowing only 25% of its current value. A lender probably wouldn't insist on me being a co-signer, because he'd be perfectly happy to lend my partner 25% by himself. For that matter, I could lend him my 50% as a second mortgage, which the primary lender would allow, and then convert my debt to equity, which the lender would certainly allow.

Seth

Reply to
Seth

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.