Not all good deeds lead to punishment. If done correctly, paying your parents' mortgage is an example of this. As long as the mortgage meets conditions imposed by the Internal Revenue Service, you can claim the interest you pay as a deduction on your taxes if you have ownership in your parents' home. If you are unsure about any deductions, contact a tax professional for advice.
If the home legally secures the mortgage debt, you might be able to claim the interest as a deduction. Make sure that the lender recorded the mortgage in accordance with local laws before you attempt to claim the interest deduction. Your county clerk's office can tell you if it has a record of the deed.
Your parents' home must meet IRS guidelines concerning qualified homes before you can deduct any interest expenses. Your main home is the home where you live the majority of the time. You can use one other home as a qualified home; a second home that you do not rent out -- or try to rent out -- or a second home that you rent for part of the year. If you rented the home and received fair-market rent, you must live in the home 10 percent of the amount of time that it is rented or 15 days if the total rented time is less than 150 days. If you do not rent the home, you do not have to stay in it at all to claim the deduction.
The debts on both homes that you wish to deduct interest expenses on must fall into at least one -- but not necessarily the same -- of three categories for you to deduct 100 percent of what you pay. Acquisition or home-equity debt from a mortgage taken after October 13, 1987, to purchase, build or renovate a home or grandfathered debt from a mortgage acquired before October 14, 1987. The combined total of the mortgages from acquisition or equity loans must be less than $100,001 if you and your spouse file a joint return or $50,001 if you and your spouse file separately. Equity debt, less the original mortgages cannot be larger than the fair market value of the secured home.
Regardless of who claims the interest, typically you need two Form 1098s from the lenders to claim the deduction. If your name is on the Form 1098 for your parents' home, total the amounts from both forms and place the total on Line 10 of your Schedule A (Form 1040). If your name is not on the Form 1098 for your parents' home, write the amount you paid on Line 11 and include a statement -- write "See Attached" next to Line 11 -- that gives your parents' name and address and how much interest you paid. If you each paid a portion of the interest, only include the amount you personally paid.
No Form 1098
If the lender did not send a Form 1098, write the amount of interest you paid on Line 11 of Form 1040. Include the lender's name, taxpayer identification number or Social Security number and address using the space beside Line 11 on the dotted lines. Download Form W-9 and send it to the lender to ensure that you have the lender's correct information. The law requires that you each have each other’s TIN or Social Security number before reporting interest payments or income.
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