I have a foreign client who has a TIN but no SS number. As such he was not able to obtain a mortgage. He had a friend get the mortgage for him. He makes the payment each month. The 1099 INT comes under his friends SS number. As such I know that if I deduct the interest it will get kicked back by the IRS eventually. His friend will not pick up the interest income as paid to him and then deduct the interest expenses , effectivley creating a wash. Does anyone have any thoughts as to this problem. It happens a lot theses days. Do they loose the deduction even though they pay the loan each month and their name is on the deed? I want to maximize his deductions, but do not want the IRS to kick back the return and deny a large deduction.
RE: Mortgage interest deduction -
9/26/08
at 8:14 AM
Yes his name is on the deed. But what about the 1099, it will not match his social security number, I think the IRS will sen a notice when it matches everything up in a few years. What do you think?
RE: Mortgage interest deduction -
9/26/08
at 8:46 AM
They will disallow deduction when they don't receive copy from mortgage company. I still don't understand how bank has lien on house is friend's name also on the deed?
>>Do they loose the deduction even though they pay the loan each month and their name is on the deed?<<
There is an argument that he IS obligated to pay the loan in order to protect his equity. This is a weak position--it comes from a couple of court cases but has not been widely used or expanded. Quickfinder used to mention it but dropped the citation many years ago.
Before you even look up the case, you must answer MLINDER42's question. How could there be a mortgage that wasn't signed by the owner?
My, My, When I was a Navy Recruiter I had an applicant who wanted to join the Navy but was married. When he got married, he was seventeen, his parents were getting a divorce and could not be bothered, so he borrowed his buddies draft notice as proof of legal age and got married using his buddies name. I wonder if this is the same guy who allowed his buddie to get married using his name? WoW!
I would suggest that your client sign a promisary note and give it to the guy who got the mortgage, using the same terms as the mortgage on the house. As previously stated, it should be a wash for the guy who took the original motgage, but then your client has added support for his interest deduction.
The "argument" or "weak position" that he's allowed to deduct the interest because he's on the title (but not on the loan) and thereby must pay the mortgage to protect his equity was - IIRC - in the regulations, and it's still in there, also IIRC. Maybe finding it in the regs is better than "a couple of court cases" - I'm not sure at all - but it does leave the overriding question of how one buys a house with somebody else's credit but without his name on the title, whatever.... Seventeen year-olds shouldn't be in the Navy, and they shouldn't be married, either.
At a different level, if the mortgage interest 1098 is *not* in your client's name, don't put it on the line on Schedule A that says "reported on Form 1098." There's another line for mortgage interest that's *not* reported to the taxpayer on a 1098.
I don't know what level of assurance to offer for this deduction. I would take the deduction, but I also make left turns on red....
Here's the regulation that supposedly gets over/past/around the fact that the homeowner is not named on the debt:
Reg Sec 1.163-1 Interest deduction in general ... (b) Interest paid by the taxpayer on a mortgage upon real estate of which he is the legal or equitable owner, even though the taxpayer is not directly liable upon the bond or note secured by such mortgage, may be deducted as interest on his indebtedness. [I don't want to tell you how very old this reg is....]
Also, I didn't mean to imply in my earlier post that there aren't a couple of cases that, relying on a strong argument of substance over form, allowed a family member to deduct the interest he's paying on a debt that is in the name of another family member, where the clear intent is for the payor to be the homeowner, be liable on the debt, live in the house, etc., and therefore eligible to deduct the interest paid.
Furthermore, with a moment to think about this situation, it's clear to me that it's not yet established, nor have we even mentioned, whether or not this antique regulation and/or the 'old' and 'weak' court case(s) can satisfy the "secured by" requirement for home mortgage interest these days. Seems to me that the cases and this regulation are from another time, long, long ago, before the law had this "secured by the residence" requirement...
Ah, I'm feeling very very old all of a sudden. ;-)
Man, nobody's looked at that paragraph since the guy from the Warren Commission was trying to smooth over the Watergate mess, half a lifetime ago by my geriatric count. I don't know how many laws have come and gone since then, but I'm sure it got snagged at least a little in all the Omnibus Budget Reconciliation Acts of the Bush administration (the other Bush, way back when).
In any case, whatever might have survived could not possibly apply to denmatdebit's immigrant, because the monkey's co-star stripped out all personal interest except for "qualified" home mortgages (and that was also so long ago that most of the people in the world weren't even born yet.)
I already *said* I'm feeling sorta middle-age, and now you're telling me that tax code and regs that I remember better than what I had for dinner last night were already on the books when some of the people at this website weren't even a twinkle in an eye yet...
I will continue to point out, however, that the regulation I cited gets past the initial problem: if the taxpayer isn't liable on the mortgage, is it possible nonetheless for him to deduct the "interest" he pays...? I am not saying that this regulation allows the deduction; I'm saying that it gets past one of the objections to its deductibility. See, e.g., MLINDER42's almost cryptic but specious comment at post #2 above: "If [the taxpayer is] not [liable] on [the] mortgage [he] has no legal responsibility to pay [, and therefore he] can not deduct [the interest on it]."
Standing on Butterfield Road counting bumper stickers and wondering what all the fuss was about. (I still haven't figured it out.)
My point is that this reg does NOT get around the objection, because it doesn't apply to personal interest. By definition, a qualified mortgage must be, umm, I don't know how to say it but the bottom line is no, at least as far as I.R.C. Section 163 and and its related regs will take you.
Oh, would you be referring to the section 1.163-10T *temporary* "qualified residence interest" regs that became *obsolete* on 01-01-88, eight days after they were published, and have not been rewritten even now, twenty years later?
Seems to me the objection, that it can't be your interest because you're not liable on the debt, is gotten around with the reg I cited.
>>would you be referring to the section 1.163-10T<<
No, sir, as I plainly stated I am referring to I.R.C. Section 163. That would be the law itself, passed by both houses of Congress and signed by the president. It goes into emphatic detail, using more than a thousand words to explain the disallowance of deduction for personal interest. Perhaps the IRS figured additional regs would be redundant.
Butterfield Road divided my school district into students who were eligible to ride the school bus and carry a lunch to eat at school and students who had to walk (run!) home to eat lunch and return to school before the period ended. I lived on the near side of Butterfield Road, and I was always skinny as a child. Those things might be related to one another, but not to deducting mortgage interest.
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