Claiming Home Mortgage Interest Deduction On Partial Owned Home

Is it correct that someone can own even just 1% of a "qualified home" that is his secondary residence, and that person would be entitled to a deduction on all of the interest for any part of the secured mortgage that he paid? Publication 936 sets no rule - and makes no mention - of the percentage of ownership. Instead, all of the rules seem to be set around secured mortgage, the amounts of interest, the type of loan, and whether it is a primary or secondary residence.

One situation where this could happen is a husband divorces and at the time of settlement gives 99% of the family home's equity to the wife. He is left with 1% ownership and agrees to pay the mortgage in full. In this case the family home is still his second residence and he is still responsible for the mortgage, which is secured by the home. Husband might be better off just paying an alimony to the wife, but I'm not focused on optimizing a divorce. I'm focused on whether the home mortgage interest deduction rules allow this kind of situation where a low-equity owner is able to fully deduct all mortgage interest he pays, regardless of the percent he owns.

Reply to
W
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The only requirements for the deduction (on Schedule A) are:

1) The taxpayer in question is liable for the loan balance, and 2) The taxpayer in question actually renders payment.

Now, in this case, since the split in ownership is incident to divorce, there won't be any implicit gift. However, payments that exceed one's ownership percentage could be considered a gift (to the extent of such excess) to the other owner(s).

Reply to
D. Stussy
[mortgage paid by 1% owner]

No, they wouldn't. If he doesn't pay, the bank can come after him for the payment, and destroy his credit. He also loses his equity. Therefore, it's deductible. (Besides, consider the case where one owner pays 90% in cash, the other gets a mortgage for his 10%. Paying the entire mortgage is deductible, not just 10% of it.)

Seth

Reply to
Seth

Is it really a residence if they is no intention or permission to occupy it? The interest would still be deductable, but under a more elaborate landlord/1040E arrangement. And the deduction may not be realizable until the landlord's interest in the property is sold if the landlords' AGI is too high.

Reply to
rick++

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