Is Mortgage Interest Deduction Assignable in a "Subject To" Transaction?

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I'm in Indiana. My wife's parents could not afford to keep their two mortgaged homes, so last year they deeded them to me and moved out of State.

The deeds were made out to me as the trustee of two trusts we created (one for each property) with her folks as the co-beneficiaries. Under the Garn-St. Germaine Act, this transaction is exempt from triggering the mortgage's acceleration clause since the title was transferred to a trust in which the grantors retained their beneficial interest.

Her parents next assigned their entire beneficial interests in the trust to my wife. Under the Garn-St. Germaine Act, this transaction is also exempt from the mortgage's acceleration clause since the beneficial interest was transferred to their daughter, an exempt person under the act.

The parents' existing mortgage remains in place, in their name, but my wife and I are making the payments.

Can we claim the mortgage interest deduction?

Again, we actually pay the mortgage and the deeds are in my name, while the mortgage remains in their name.

If not, is it possible for them to assign their mortgage interest deduction to me, similar to the assignment of a child exemption using form 8332?

I do have a signed power of attorney from both of them that specifically authorizes me to deal with the IRS, Indiana Dept. of Revenue, mortgage companies, insurance companies, utilities, etc. etc. at will. It's very comprehensive.

To recap, we in essence "bought" the property subject to existing financing, we retain their power of attorney, and want to know if there is any way (directly or via an assignment) that we can claim the interest deduction on their mortgage which we are paying on our property?

Thanks for any input. I understand that no attorney-client relationship is created by my asking this question or by your musing on this question.

Reply to
William Miller
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No, they didn't deed them to you. They deeded them to the trust. You are merely the trustee.

On the surface it looks like the assignment to your wife eliminated the grantor trust status of the trust, meaning that deductions would belong to the trust on its 1041. On the surface it also looks like your in-laws owe the IRS a gift tax return.

But then, I'm not a lawyer, which is what you needed in the first place. Pick one who understands the taxation of trusts.

Reply to
Phil Marti

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