A question pops up every so often (10 years or less) asking whether the taxpayer can deduct the property taxes or mortgage interest that they paid for someone else. Typically, this involves parent(s) and child. The answer for property taxes is that you can't deduct property taxes you paid on real property unless you are obligated to pay them. The answer for mortgage interest, is that you can't deduct mortgage interest unless you are liable for the loan and the interest is not personal interest. I.e., the property is your main or vacation home and the property secures the loan.
In reviewing some of the replies on these posts, there is usually a comment that the person who had the obligation to pay (typically the owner), may not take a deduction because that person did not make the payment.
Now comes a tax court case from last December that says differently. The court took the position that substance trumped form. The case involved an adult child who was not a dependent who took a tax deduction on Schedule A for medical expenses and property taxes paid for by her mother. The medical expenses were paid directly to the providers and the property taxes were paid to the city. No gift tax return was prepared by the parent as the property taxes paid were less than the annual exclusion ($12K at the time) and the medical expenses paid were exempt from gift taxes because of the direct payment. The taxpayer argued that the court "should consider them to have in substance passed from Mrs. Field to petitioner and then to petitioner?s creditors; therefore petitioner should be entitled to deduct the payments." The IRS argued "that the form of the transaction should apply and that because the money was paid directly from Mrs. Field to petitioner?s creditors, petitioner may not claim the deductions."
The court ruled in favor of the petitioner on both deductions.
See Lang vs Comm'r, TC Memo 2010-286 for details.