unrelated mortgagors, splitting interest deduction

How do you reach that conclusion? The fifth and sixth words of that 'graph are "you pay."

OK, that's why I asked. Actually a sentence I didn't quote from the pub but just now re-read says: "Generally, home mortgage interest is any interest *you pay* on a loan secured by your home".

The fuzzy parts for me are still

2) when co-borrowers pay out of a joint checking account, ditto.

Is there anything stopping one co-borrower from reimbursing the other for some or all of the interest portion of the monthly mortgage payment? Or perhaps they could send in two separate checks for each payment, one for principal, one for interest, or some other split?

Fortunately in the current situation I'm working with, it makes no difference to the household bottom line which taxpayer claims (or could have claimed) the mortgage interest deduction or Head of Household status for that matter, but is the best advice going forward to make sure there is a paper trail of some kind showing interest payments from the one who is expected to be in a higher tax bracket in any given year?

-Mark Bole

Marriage makes them related. The original question is about unrelated owners.

Watch out if they're in a common-law marriage state! ;-)

And why or how are the rules different for related people filing separately, when it comes to the home mortgage interest deduction? Sorry if I'm being dense...

-Mark Bole

It seems to me it shouldn't make a difference, except to the extent that an unmarried person's paying another's share of the mortgage interest is a taxable gift.

Stu

A court case last summer (Njenge v. Commissioner) held that when the occupant of a home paid all the mortgage and taxes (and upkeep, etc.) when the home was owned by their son and the mortgage was in the son's name, merely as a convenience to the occupant because they couldn't qualify for a mortgage, the occupants were held to be equitable and beneficial owners of the home and thus entitled to mortgage and tax deductions.

Note that payment is still key here, but this conclusion was one I hadn't considered before reading the case.

Tom Healy, CPA, CSA Boulder, CO

The issue is true (equitable) ownership rather than mere ownership of record. This issue comes up fairly often in the context of living trusts.

You might say that living trusts are grantor trusts, so that's not the same. But in fact when one person is the title owner and another has an equitable interest, the property is legally held in trust for the equitable owner, and that will normally be considered a grantor trust. In most if not all states the law says that any trust not designated as irrevocable is revocable.

Stu