If you buy a home or a second home for yourself, the rules are simple. If you own the house, you get the write-offs. If your son or daughter's name is on the mortgage but you're writing the checks, it's more complicated. In some cases it's possible that nobody gets to claim a deduction.
You can only take the mortgage interest deduction for a property you own. If your child's name is on the deed and the mortgage but you're making the payments, you get no write-off. If your name is on the deed, you can claim the deduction as a co-owner. You may also qualify if you're an "equitable owner," someone with a stake in the property even if you're not on the deed. Contributing to the down payment would be one way to do this.
If your child writes the mortgage check each month, he claims the deduction. Even if you're on the deed or an equitable owner, you can't take a write-off for what your co-owner pays. Likewise, he can't take a write-off if you write the mortgage check. If you divide the payments -- you pay 60 percent, he pays 40 --- you get 60 percent of the deduction and he gets 40 percent. Even if you share ownership 50/50, you base your deduction on how much you pay, not what percentage you own.
When property taxes are based on the value of the house, they're deductible. The rules on taking a write-off are much the same as for mortgage interest: you can't take the deduction, even if you write the checks unless you have an ownership stake. Taxes levied to pay for a new sidewalk or street lights in the neighborhood are not a write-off for anyone, though. The government assumes this boosts the value of the property, so there's no deduction.
The only way to write off either mortgage interest or property tax on a residential home is as itemized deductions on Schedule A. If you make the payments and you're an equitable owner, but you don't itemize, you still can't take the mortgage-interest write-off. Depending how you and your child structure the payments and the ownership, you could end up with neither of you able to take a write-off for the house.
- Nolo: When Home Mortgage Interest Is Not Deductible
- HouseLogic: How to Deduct Your Mortgage Interest & Equity Loan Costs Read more: http://www.houselogic.com/home-advice/tax-deductions/deduct-mortgage-interest/#ixzz2SXqOG4QF
- Internal Revenue Service: Home Mortgage Interest Deduction
- Internal Revenue Service: Deductible Taxes
- Santa Clara Law: Shared Home Ownership: Who Gets to Take Interest and Property Tax Deductions?
A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.