Can I claim mortgage deduction on my taxes in my situation?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
montej
Posts: 12
Joined: Thu Aug 15, 2013 11:45 am

Can I claim mortgage deduction on my taxes in my situation?

Post by montej »

I'm in fairly unique situation. I'm in a 25% bracket, 25yrs old, filing as single. I do my own taxes using TurboTax, all other family members use accountant. My family owns multi unit house which we live in - my name's listed on the deed, and I contribute 1/6th of the total mortgage payment. My brother contributes 3/6, my parents 2/6. All of our names are part of the mortgage with the bank, the tax return is filed under my brother's name (I don't think this matter though?).

1. Since I'm failing as single, independent, and I'm in 25% bracket, financially it would make sense for me to take the whole deduction to maximize the return for everyone and later split it proportionally once I get the money from the IRS. Can I do that? (Family politics aside)

2. The previous years the accountant was putting entire mortgage on my brother, whose portion is 50% of the mortgage. Accountant's explanation was that only one tax return can claim mortgage deduction. Could someone be able to elebatore why this is the case?

Not sure if it helps, I'm in Massachusetts.
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: Can I claim mortgage deduction on my taxes in my situati

Post by sscritic »

I doubt the accountant's answer. Ask him about married filing separately.
If you and your spouse are filing separately and plan to itemize, you can split the mortgage interest expenses however you like as long as the combined deduction does not exceed the actual interest expense.
I saw another article that said the interest had to be split, not allocated at will. In that case, one of the couple wasn't on the mortgage, so only the spouse on the mortgage could take the deduction, but only for half the amount.
User avatar
jimb_fromATL
Posts: 2278
Joined: Sun Nov 10, 2013 11:00 am
Location: Atlanta area & Piedmont Triad NC and Interstate 85 in between.

Re: Can I claim mortgage deduction on my taxes in my situati

Post by jimb_fromATL »

It doesn't matter if your name is on the deed. You have to be liable for the mortgage. Assuming your name is on the mortgage, then you can only deduct the amount of interest you actually pay.

Your accountant seems to be wrong about only one person being able to take the deduction, too. You cannot claim a deduction for money that you did not pay yourself. I'm pretty sure the accounting term and legal term for that is "tax fraud".

According to Publication 936
    • More than one borrower.

      If you and at least one other person (other than your spouse if you file a joint return)
      were liable for and paid interest on a mortgage that was for your home, and the other
      person received a Form 1098 showing the interest that was paid during the year,
      attach a statement to your return explaining this. Show how much of the interest each
      of you paid, and give the name and address of the person who received the form.
      Deduct your share of the interest on Schedule A (Form 1040), line 11, and print
      “See attached” next to the line.
From your description, it sounds like you could claim 1/6 of the mortgage interest. Assuming the taxes and insurance are included in the total mortgage payment (PITI -- Principal, Interest, Taxes, and Insurance) you also pay 1/6 of the property taxes, and you could deduct your share of that, too.

By the way, it seems to me that your family members might want to consider another accountant if he/she really does't know these fairly straight-forward rules on how to report the interest, or else is intentionally advising them to commit tax fraud in order to get a deduction they're not qualiied for.

Another question is whether you will actually get any tax savings even if you do claim the mortgage interest deduction.

Because of today's high standard deduction and low mortgage interest rates, only about one in every three or four taxpayers exceeds the standard deduction and gets any savings for their mortgage interest. And since you're only paying 1/6 of the interest and at most 1/6 of the property taxes, unless it is a very expensive house with a big mortgage and/or high rate, and very high property taxes, it doesn't seem likely that you'd exceed the standard deduction by much and get much if any tax savings.

How much is your 1/6 share of the mortgage interest?

Do you pay a 1/6 share of the property taxes? ... and if so, how much is your share?

Even if you do exceed the standard deduction, you'll only reduce your taxes by 25% of the amount that exceeds the standard deduction. You'll probably get to save anothe 5% or so fo that amount for state income taxes, too.

To give you an example:
  • If a home is worth around $350,000 with 70% of it financed with a mortgage balance of $245,000 at 5% with 25. years remaining, the interest for the year will be $12,135. (it will go down every year because interest is calculated on the unpaid balance every month.)

    Maing a guess for property taxes of perhaps 1.5% of the value, $5250, the total interest and property tax would be $17,385. Your 1/6 share that you could claim on your income taxes would be $2,898.

    The $2,023 mortgage interest + $875 property taxes + perhaps $3,500 state income tax + maybe $500 ad valorem taxes on cars, etc = $6,898.

    $6,898 exceeds the $6,100 standard deduction for a single taxpayer by $798.

    Assuming 25% fed and 5% state tax deductions, that's 798 x 0.30 = $239 less tax for the year.
That sure wouldn't be worth taking the chance of being charged with tax fraud for me.

jimb
sunnyday
Posts: 1679
Joined: Sat Jul 16, 2011 8:48 am

Re: Can I claim mortgage deduction on my taxes in my situati

Post by sunnyday »

^ great advice by jimb. If you made charitable donations those will also increase your itemized total.

Run the numbers and see if it's even worth itemizing. If not, you don't need to worry about it.
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: Can I claim mortgage deduction on my taxes in my situati

Post by sscritic »

Following jimb, show the next paragraph, which follows his, to your brother.
Similarly, if you are the payer of record on a mortgage on which there are other borrowers entitled to a deduction for the interest shown on the Form 1098 you received, deduct only your share of the interest on Schedule A (Form 1040), line 10. Let each of the other borrowers know what his or her share is.
P.S. Good find, jimb. I looked, but in the wrong places, obviously.
MarkNYC
Posts: 2999
Joined: Mon May 05, 2008 7:58 pm

Re: Can I claim mortgage deduction on my taxes in my situati

Post by MarkNYC »

If a co-owner of a property makes mortgage payments, that owner can deduct the interest paid, even if not listed on the mortgage loan. The rationale being that a co-owner has an economic interest in making sure the mortgage gets paid. Reg 1.163-1
User avatar
jimb_fromATL
Posts: 2278
Joined: Sun Nov 10, 2013 11:00 am
Location: Atlanta area & Piedmont Triad NC and Interstate 85 in between.

Re: Can I claim mortgage deduction on my taxes in my situati

Post by jimb_fromATL »

MarkNYC wrote:If a co-owner of a property makes mortgage payments, that owner can deduct the interest paid, even if not listed on the mortgage loan. The rationale being that a co-owner has an economic interest in making sure the mortgage gets paid. Reg 1.163-1
That seems fair. It would be nice if the IRS would update their publications about things like that.

It looks like the OP can deduct 1/6 of the interest without necessarily being on the loan document. So ... is there another change somewhere that says a part owner can deduct interest that they didn't pay?


jimb
MarkNYC
Posts: 2999
Joined: Mon May 05, 2008 7:58 pm

Re: Can I claim mortgage deduction on my taxes in my situati

Post by MarkNYC »

A property owner can only deduct mortgage interest to the extent he/she actually "makes the payment." If A mails the checks, and B reimburses A for half the amount, then each can deduct 50% of the interest. Who "makes the payment" is determined by whose funds are used, not who mails the check.

IRS publications are usually accurate, but not always.
02sbxstr
Posts: 83
Joined: Thu Jan 06, 2011 1:30 pm

Re: Can I claim mortgage deduction on my taxes in my situati

Post by 02sbxstr »

This is somewhat similar to this situation: my wife and her sister bought a house for their parents to live in. It is a 50 / 50 split, both are mortgagors. The property tax is also split 50 / 50. The parents are not paying rent. I've been meaning to consult a tax specialist re the tax treatment of this venture, but since I won't have all my tax documents until early April, have not gotten around to it yet. But this thread started me thinking. Any ideas out there on tax treatment? Thanks in advance.
Post Reply