Visitor I

Bought a home for my dad--Please help

I need help to understand what is the best way to treat this property I am buying for my dad. Due to my dad's credit, I am buying/financing a townhome for him (Mortgage in my name only) but he will live in it, pay the 20% downpayment, and pay the mortgage from his account. My questions are:

 

1. Can he claim the mortgage interest at the end of the year?

2. Do I need to report anything on my taxes? If so, how do I report it? Second home or rental?

3. As an FYI, I can not add him on the deed because he has a current judgement/lien against him in the courts from bad credit almost 10yrs ago and I don't want to take the chance of losing the home. What are my options?

 

I've been told that as long as a person as a "vested" interest in the property, ie..they pay for the mortgage, live in it,...etc, they can claim the mortgage interest  regardless of who is on the 1098. But how do I treat this scenario on my own tax return?

 

 

3 Comments
Catalyst V

Bought a home for my dad--Please help

1. Can he claim the mortgage interest at the end of the year?

A: Yes. But he will need to be able to prove in a court of law that he paid it, with his money, should he ever be audited.

2. Do I need to report anything on my taxes? If so, how do I report it? Second home or rental?

A: No. Not if your dad will be paying the mortgage and the property taxes.

3. As an FYI, I can not add him on the deed because he has a current judgement/lien against him in the courts from bad credit almost 10yrs ago and I don't want to take the chance of losing the home. What are my options?

A: Seek legal advice from a lawyer. Depending on the type of debt, the statute of limitations may be long past. Or it may not. But if the debt is still legally collectable and your dad's name is on the deed, then a lein can be placed on the property until the debt is paid in full.

 

"I've been told that as long as a person as a "vested" interest in the property, ie..they pay for the mortgage, live in it,...etc, they can claim the mortgage interest  regardless of who is on the 1098. But how do I treat this scenario on my own tax return?"

 

You've been informed accurately. That is why if audited, you dad will need to be able to prove in a court of law that he paid the mortgage and the property taxes with his money, that he earned.  This is particularly important since your name and SSN will be on the 1098. So your dad needs to obtain and keep ***FOREVER*** any and all receipts in his own name for any and all transactions that occur on this property. THings like receipts for property taxes paid, and mortgage payments. As far as how you treat it on your own tax return, there's nothing to "treat". You are not claiming any deductions for the property, so you have nothing to claim, report, "treat", or anything.  To help further your dad's claim should he be audited, I would assume he is going to establish the property as his primary residence.

 

Do be aware however, that should this property be sold in the future, any and all taxable gain on the property will be taxable to **YOU**, not your dad.

Visitor II

Bought a home for my dad--Please help

Hi, my situation is similar but both my Mom and I are on the 1098 but my Mom's name comes first.  I am paying the mortgage which includes the taxes and insurance through the escrow account.  My Mom is paying her HOA fees.  I sent my taxes to a tax accountant referred by a friend and he said that because my Mom's name comes first on the 1098, that I can't claim anything to do with the purchase of the condo or the resulting 1098 because my name is second on the form.  If the above answer is correct, then I should be able to deduct the interest, taxes, and insurance, right?  Any assistance would be appreciated and if you know of any formal documentation that I can give the tax accountant to validate my claim, that would be awesome.  Thank you in advance. 

Catalyst V

Bought a home for my dad--Please help

Per IRS Publication 936 at https://www.irs.gov/publications/p936 you can claim qualified deductions (basically, mortgage interest and property taxes on a primary residence/2nd home, and that's it) if two conditions are met.

1. You have a vested interest in the property

2. You actually pay the expense you are claiming.

There is nothing that says your name has to be on anything - mortgage loan papers, property deed, nothing.